“Fall in Love with the Problem, Not the Solution: A Handbook for Entrepreneurs” is the book written by Uri Levine, sharing learning from his entrepreneurial and investor life. Uri is the co-founder of Waze—the world’s leading commuting and navigation app with more than 700 million users to date which Google acquired in 2013 for $1.15 billion. He is committed to spreading entrepreneurial thinking so that other founders, managers, and employees in the tech space can build their own highly valued companies.
Some of the key lessons from his book:
Falling in love with the problem
- Building a startup is very much like falling in love. At the beginning, you spend time only with that idea. This is when, you think of the problem, the users, the solution, the business model – everything.
- Each entrepreneur has Eureka! moment. It is always frustration that leads to understanding there is a problem. Then ask yourself, who has this problem? Now, if the answer is just you, don’t even bother. it is not worth it.
- If many people have this problem, then go and speak to them to understand their perception of the problem. Only afterwards, build the solution. if you follow this path, and your solution eventually works, you will be creating value, which is the essence of your journey.
- Starting a company is a leap of faith. How do you know when you are ready to launch a startup? when you are willing to sacrifice.
- Toothbrush model -something that you would use twice a day.
- Entrepreneurial Zone – Your passion for making a change must be greater than your fear of failure and the alternative cost.
A Journey of Failures
- Building a startup is, at its essence, a journey of failures. If you are afraid to fail, in reality, you have already failed, because you are not going to try. To increase your likelihood of being successful, you must fail fast.
- Failure is not only OK but also necessary. By embracing failure, you increase the likelihood of being successful. What matters most is how fast you recover – how quickly you can get back on your feet. Entrepreneurs will never give up.
- You try one approach – be it a new product feature or testing your pricing model or a decision about scaling up in a new territory – it fails, and you move on to the next idea until you get it right. And then you don’t change at all.
- When you are crossing a desert, there are two things you don’t want to do – (a) you don’t want to change directions, otherwise you might wind up walking around in circles. (b) You don’t want to run out of fuel. It turns out that fuel is very expensive in the middle of the desert.
- Product Market Fit (PMF) means you are creating value for your users, and they are coming back. Four elements to increase your likelihood of getting to PMF:
- Fail fast so that you have more time/runway
- Listen to your users
- Focus on the problem
- Make the hard decision
- One of the best ways to get to that point is actually to start with something that’s not good enough and then iterate repeatedly until it is good enough. The best time to launch your product is when you will be embarrassed by the quality of it. “Perfect is the enemy of good”
- In the consumer services business, retention is the only indicator of product-market fit. If users are coming back, you are creating value. You can’t build a company if your retention sucks.
- If you don’t speak with users, you can easily figure out the “what” but not the “why”. And in order to get to “good enough”, you need to understand the “why”. You can only learn when you have Real Users and Real Feedback.
- Going through a journey of failures allows you to determine what to do by realizing what does not work and in particular why it does not work.
- TODAY IS THE FIRST DAY OF THE REST OF YOUR LIFE.
Embrace Disruption
- The most important thing about disruption is that it is not about technology, it is about changing behavior and as a result, changing the market equilibrium.
- Disruptors are always newcomers. Incumbents and in particular, market leaders don’t disrupt because they have too much to lose. Large corporations have less risk-taking in their DNA.
- Entrepreneurs tend to be troublemakers, they don’t last long in large organizations.
- There are right decisions and there are NO decisions. We can not predict what would have happened on the path we did not take.
- Three major examples of disruption – Free, Marketplace and Ecosystem.
Operate in Phases
- The difference between “in theory” and “in reality” is much bigger in reality than it is in theory. The real plan is easy: Stick to phases and operate by them.
- A startup in order to be successful, needs to do one and only one thing right, and to increase the likelihood of doing so, it needs to say no to everything else. Focus is not only what we are doing, it is about what we are Not doing. These are the hard decisions to say no to.
- The main thing is to keep the main thing the main thing. The first thing to decide is what to focus on, which means deciding on MIT (the Most Important Thing).
- Raising money for your startup is like refueling your car before you set out on a journey. If you don’t have enough fuel, the journey ends. Bus the purpose of the journey is not refueling. The goal is to get somewhere. Filling up the tank is simply a necessary evil.
- The startup strategy always begins with product-market fit. If you figure out product-market fit, you get to live. If you don’t, you will die.
- Achieving simplicity will take iterations.
- Ascending to the peak is hard and you try many different ways until you get to the top. And only then do you realize that this is not the mountain, it is just a mountain on the way to the summit. But you can only see it once you climb toward the first peak. So, you refocus your efforts and climb this one, only to realize that this is still not it – There is another mountain beyond this ridge that is much steeper and even harder to climb.
- Business model is simply – What do you get paid for by the customer, and how much?
- For B2C businesses, the main metric is retention, for B2B it’s whether a customer is coming back to buy for a second time. B2C will try to figure out their growth after PMF. B2B companies need to figure out their business model before growth.
Fundraising and managing investors
- Fundraising is an ongoing and repetitive activity.
- Explain the problem, present the opportunity, or set a statement so that when you later tell the story, it will be considered fact.
- For fundraising, storytelling is very important. Start with the Who and the Why and get to the What at the end.
- A term sheet is a letter of intent from an investor that summarizes the terms of their potential investment in your company.
- Topping-up is when founders, CEO and management team are getting too diluted and are granted additional equity in the form of ISO or ESOP.
- Secondary shares are when you (the founders, the management, and all employees) sell some of your shares to someone else.
Firing and Hiring
- A company’s DNA is all about making mistakes, failing fast, firing fast, and transparency.
- The best CEOs should tick more than one of the four boxes:
- Make decisions with speed and conviction
- Engage for impact
- Adapt proactively to changes
- Deliver reliably
- If you are looking to construct the team, think of the following:
- Complementarity
- Egolessness
- Clear planning
- Alignment of interests
- Only other CEO can help combat CEO loneliness.
- People join companies but they leave people.
User Behaviour
- Product-market fit is all about Value Creation. If you create value, you will succeed. If you create great value for many people, you will be very successful. If users are coming back, it means you are creating value. PMF is not about gut feeling but about numbers.
- In B2B, it is about the customer buying more, which means renewing their annual contract or expanding their engagement and coverage.
- Our perception is much more accurate when looking at something fresh than looking at our own products, services, or companies.
- PMF metrics are very simple:
- Conversion – measures the percentage of first-time users who were able to obtain value from the product
- Retention – the percentage of users who kept on using the product over time.
- MAU (monthly active users) and NPS (Net promotion score) are other metrics
- It is better to say sorry than to ask for permission – you simply try more and dare more this way.
- You need to have that sense of listening to users as a key part of your company’s DNA – everyone needs to speak with and watch them.
- “Three uses” – If someone uses the product three times, they are very likely to remain engaged, so conversion happens within three uses.
Product-Market Fit (PMF)
- Self-exploration is an innovator or early adopter behavior.
- To understand user behavior, think of the following geographic difference:
- How good is good enough?
- Social and social+ behavior
- Gig and the sharing economy
- Trust in general and trust in government or brands
- Safety and perception of safety
- inclusion
- Small or large in terms of population
- Wealth (GDP per capita)
- The identity and characteristics of your users change over time, in two dimensions. First, your users in the early days are more likely to be innovative or early adopters. Secondly, once successful, your users are recurring users that already know how to use the product.
- The “time difference” between today and tomorrow is about two to three years, and between today and the future is about four to five years.
- The early majority users need the early adopters to guide them, to tell them it is OK to use the app and to help them to make that leap of faith.
- The gap between users you dream of and the ones that you actually have is creitical throughout the journey, because while your product looks to be at product-market fit, it is PMF for early adopters.
- Always bring in early majority users as soon as possible to gather feedback. Recall that they are not going to show up by themselves, you will need to encourge them to try your product.
- Users don’t know what they are missing. People might be using the product differently, not using a key feature, or not using the product a all.
Making money
- Management is doing things right. Leadership is doing the right things. (Peter Drucker)
- A business plan is essentially a “forecasted long-term P&L”. A business model is a simple explanation of how you will make money.
- A formula to make sure that the LTV (lifetime value) of your product is significant. The final sum – LTV minus COGA divided by CAC (customer acquisition cost) – must be large enough so you can become profitable.
- The state of mind of saving money is that the floor is the maximum you can do, but in making money, the sky is the limit, customer will feel more empowered with this value proposition.
- When you’re in the PMF phase, once you figure out the product, it does not change anymore. That’s not the same for the business model journey. Once you find something that works, you should try to grow it.
- The business model journey ends when a few things come together: the story, the value, and the renewal. While you have a never-ending journey to calibrate the business model, customer satisfaction is critical to reaching the renewals.
- Customer Success – is the most important part of the sales process. Their aim is to make sure the customer is engaged with the product and is using it.
- Price is determined in the market, and not by the company. The cost, however, is determined by the company, and the market does not care about it.
Growth
- Growth is a big deal. It is the hardest journey, and very few are successful in figuring it out big-time. The growth is not about a single event. It is about consistency in the results and the ability to determine growth over time.
- WOM (Word of Mouth) is a derivative of frequency of use. Frequency of use defines your startup strategy and GTM (Go to Market) Strategy.
- If your product has a high frequency of uses, then start with PMF, go to growth, and only then try to figure our the business model.
- Marketing is much more. If you engage the marketing team early, they will create the market-product-price strategy, only after that, the promotion of it in the market.
- Marketing is “bringing users one at a time”. Business Development is about “bringing groups of users”.
- Conversion ratio:
- Sale close-win ratio: 25-75%
- BD: 5-10%
- Fundraising: 1-2%
- In marketing, if something works, you can not be certain it will work again or that it will work the same way somewhere else.
- Startups can not help each other.
Go Global
- If you are coming from a small place and your aim to become a global market leader, then after two or three product iterations, even when it is not good enough yet, your learning and improvement will become much more significant in the large target market and not with more iterations in your small home market.
- For global expansion, choose is a significant market that is easy to win.
- Look at GDP per capita and assume similar business/consumer behavior in like-minded countries. Then go and look for other similarities, such as social and cultural behavior. Finally, find your specific total addressable market (TAM).
The Exit
- Earn out – means the cash part of the deal is small, but it can double, triple or quadruple itself if you step up to specific targets set by the acquiring partner.
- Once you have decided that you would like to accept the offer, the commitment to stay is part of the deal.