From Idea to Scaling: The Key Frameworks and Models for a Successful Startup
From Idea to Scaling: The Key Frameworks and Models for a Successful Startup
In her next interview, our People Management Partner and executive coach, Marianna Krell, spoke with Tyrome "Ty" Smith, an executive and startup coach, an entrepreneur in residence at StreetCode Academy and the University System of Maryland, and Director of Strategic Partnership at the Common Mission Project, about the critical frameworks and strategies startups should think of when launching a new product to the market.
Tyrome ‘Ty’ Smith has over 25 years consulting and leading executives and their teams by helping them understand human and organizational dynamics. Currently, he is the Director of Partnership for the Common Mission Project, whose mission is to create an international network of entrepreneurs driven to solve the critical challenges of our time. Prior to that, he was a senior consultant to the Department of Defense (DoD). As a trusted advisor and coach to senior leaders and teams, he has conducted many senior-level engagements with the expressed intention of eliciting a strategic focus on revolutionizing how value is both conceptualized and executed. As part of his work, he developed an innovation education program for the DoD, including coaching and mentoring product development teams.
Marianna Krell is a people management partner at Embria. She is a Certified Change Management Practitioner (PROSCI) and an executive coach for teams and executives (ANC, ICTA) with a focus on enabling and delivering organizational transformation and team performance. She has designed over 20 successful transformation programs. Marianna is the author of multiple papers on transformation and people management and a regular speaker at international conferences such as TEDx.
Marianna Krell: Ty, I want to talk to you about startups, particularly about launching startups. I know you work with multiple verticals, from fintech to lifestyle and health, and so do we at Embria. Have you noticed any link between the verticals and frameworks that startups use (or need to use) to successfully get their products or services out there? Do frameworks depend on the vertical? Or are they fundamental and shared across all industries?
Ty Smith: I would say "yes" to both, but it all depends. The problem I always see is that people stuck in a vertical usually say things like, "You don't understand my business." So I'll ask them, "What is your business?" It turns out they need help describing their business because what they describe are signs/symptoms of pain within their organization.
I am an entrepreneur in residence at a couple of different organizations. There, I teach that if you encounter a problem and hear the phrase "I wish somebody would...," that is the ideal time to start a business or at least investigate the possibility of creating one. So, whether it's fintech, healthtech, or lifestyle, there are things that startups are built to try to solve. Well-positioned and organized ones are trying to develop a series of hypotheses at the beginning. They then go and make observations to confirm or disprove their hypothesis.
Verticals may have different problems. But the intrapreneurial process is similar to how a startup approaches that problem and is relatively consistent. It is what a startup does; create a set of hypotheses and develop a set of experiments centered around an unknown or unproven idea.
Marianna: That's true. I recently spoke to the founder of a very successful company that used to be a startup. He said he stopped working with anyone who asked him for benchmarks. For example, what his competitors are doing, their strategies, etc. He doesn't do it anymore. He calculates his own metrics and does his own research but never builds the route based on the light from the nearby ships.
Ty: This reminded me of the Blue Ocean Strategy, whose authors, W. Chan Kim and Renée Mauborgne, say, "Don't look left and right because that's the “red ocean.” Let them eat each other's lunch.” They suggest going to the “blue ocean” of uncontested, non-commodity space. They suggest finding an opportunity space that is benchmarked not against some industry standard but against your own capacity and capabilities to answer an industry problem.
Benchmarking like this allows one to understand the left and right boundaries needed to understand the problem space. If you're trying to benchmark against the competitors, that means that you are benchmarking against each other; everybody is fighting for the same market space. What they should be saying is, "Where is the market going?" You want to understand where the market will be and create your company, building your path to wherever it's going, not where it is now. Wayne Gretzky, arguably, the greatest hockey player ever, said, "Skate to where the puck will go, not where it is."
Marianna: Definitely. So we're speaking about the critical stage of any startup looking desperately for product-market fit (PMF). Could you share a few typical mistakes you see in specific verticals? Or are they cross-vertical for every startup?
Ty: In his last book, "Competing Against Luck," Clayton Christensen talks about understanding the customer in terms of functional, social, and emotional parts. It doesn't mean you've achieved productivity because it meets their practical needs. Or just because you've made an emotional connection doesn't mean you've found a PMF, and the same is valid for social connections. What is necessary is that you have the right combination of all three of them.
You're never going to have a 100% PMF. But, as Steve Blank would say, "The only thing that matters is what people buy." When you have people buying stuff, that's PMF. The idea is that you don't start working on an idea because somebody says, "Oh, that's cool." Go and try to sell it first and learn what the market is interested in. And if they aren't going to give you money for it, at least let them give you something back.
An email address.
A letter of commitment.
A reference (someone else who might be interested in it).
But you have to understand that you must test for it. You don't have a PMF if any of those three things don't happen. You might have a product, but you need a market for it to go into; there needs to be a fit.
It doesn't mean you've achieved productivity because it meets their practical needs. Or just because you've made an emotional connection doesn't mean you've found a PMF, and the same is valid for social connections. What is necessary is that you have the right combination of all three of them.
Marianna: That sounds like a problem and a solution. You must ensure that you have met all three layers you've mentioned and that they all meet in one spot. We all know products that we like but never buy. They can solve some of our tasks, but we are not ready to pay for them.
Ty: Exactly. I believe in intersections. You're probably aware of the term "intersectionality" is usually associated with culture. But in the startup world, there is also intersectionality that we must take into consideration.
I started as a chemistry major but had a horrible math experience in high school, but I kind of understood math as a physics problem; all that theoretical stuff didn't make sense. So I quit hard science and graduated with two degrees in communication. But the one thing I remember about calculus is solving for the area under the curve. In that effort, you're trying to reduce the uncertainty of knowing the limits between left and right. You're figuring out how to lower the amount of uncertainty.
What all of the startup people who are reading this or the folks I work with want to do is develop an uncertainty calculus. They are trying to decrease the uncertainty between the left and right through experimentation and execution.
Go outside and stop talking to each other because the answer is not there. Because if you didn't, you'd spend your money trying to figure out what the market would be, not what it is.
One of your questions was about mature organizations and that gentleman you talked about who doesn't follow his competitors. What he's trying to understand are his own business's left and right limits, and he experiments his way into reducing the risk associated with going in a new direction as the uncertainty, which means you always test in between. You're constantly testing for understanding as to space between approaches zero around what's risky and what's not. And the only way that you can do that is to go into the market. As Steve Blank would say, "There are no answers inside the building." Go outside and stop talking to each other because the answer is not there. Because if you didn't, you'd spend your money trying to figure out what the market would be, not what it is. Mike Tyson, the famous boxer, said, "Everybody has a plan until they get punched in the mouth." Everything you thought was real vanishes the moment you are punched. This is what could happen when you don’t test your ideas against the proclivity of the market.
Marianna: Yeah, that's a crash test of your startup idea against reality. You made me think that strategy is not only something you do but also something you don't do.
Ty: Absolutely. One of the things that I read recently was Roger Martin's book, "Playing to Win." He has been one of the world's top three or four management thinkers, according to Thinkers50, for several years. The part I love about his book regarding the art and science of strategy is that he suggests that strategy is the art of knowing what you don't do as much as what you do once you determine what winning looks like. "If I'm going to win this way, this is what winning looks like. I've got to figure out what I don't do."
I believe startups get stuck in their multiple focuses. Amazon famously started by selling books and nothing else. There was a hole in the market for having an online book exchange. They figured it out. 20–30 years later, their most significant revenue generator is AWS, not books. They pivoted to determine the hole in the market and shifted their strategy.
Speaking of strategy, it's something other than the three-year thing you write. Who would have thought about COVID-19? It just tossed everybody's strategies out the window. I had a five-year plan, and COVID came and said, "I've got something for you. Try this now." It created transformative opportunities. Those organizations that could pivot their strategies and ideas were able to survive.
Marianna: Thinking about the capacity to pivot—that's this stage of looking for PMF. Finding or diverting it only partially depends on the framework you use. It also depends on the culture, team, and founders' mindset.
I know you are not only an entrepreneur in residence. You are also an executive coach and work on group relationships. So what's the most important thing for the founders when they approach this critical "delegate/risk or die" stage?
Ty: When you and I first met, it was in an executive coaching environment. I wanted to do executive coaching because I wanted to work with founders.
The most critical thing a founder can do is stay curious, which costs nothing. I believe the sense of certainty we associate with founders, such as "I know how to fix this problem," is a misunderstanding at best and could ultimately lead to failure. We must remember that the market has a say. So your certainty, your inability to be curious, and lack of humility as a founder could kill your business.
You can still focus on what you think might work for what your offer brings to the market. But you have to be in a space where you can say, "What am I observing?" Remember the calculus I was speaking about earlier? Every time you engage in the market, you're reducing the uncertainty.
But nothing is certain because a wild-hair variable like COVID could appear and throw everything you've been working for out the window. Now you can do one or two things. You could say, "Oh, Lord, I quit!" or "No, I'm going to double down. I need more money to get my project off the ground." Or you can say, "Let me be curious, go into the market, and make more discoveries."
Marianna: Curiosity is the primary fuel that drives you forward and helps you overcome burnout, which is typical in the startup world because you are building something new. Even if you are in the blue ocean, you still need a reason to keep going.
Speaking of frameworks, what else could help the companies on this rollercoaster ride?
Ty: Some folks reading this may be familiar with Alexander Osterwalder, a Swiss business theorist who created the Business Model Canvas. There's another one called the Lean Canvas by Ash Maurya. I describe both of them as your architecture—like building a house. The nine blocks in the business model canvas can be considered a living system. As a result, if something happens in one part of your business model, it will impact the other part. They don't live in isolation. They may be designed in blocks because that's how the human mind sees things. We categorize stuff. We want to understand the relationship between our customers and our key activities, distribution, and resources.
So what you're trying to do with this framework is understand how your business architecture all comes together. The engineers know this. My son is an up-and-coming engineer who is developing a business around esports. The problem with engineers is they're like, "I know what the problem is, and I know how to solve it." And they never return to the framework because they're still not profitable or haven't broken even two years later. They say, "What's wrong?" and their burn rate is crazy, and they keep going back to, "No, I have good ideas. Here are another 1 million dollars. What else will we do with it? I got it." Three years in, they're like, "Oh," because they never stayed curious and never went in and reinvestigated their business model.
So, if you never use those nine blocks from the business model canvas, you're in serious trouble.
Marianna: Yes. Some companies create this canvas and don't update it for long, while others do it too often, like every other month. Where is the sweet spot?
Ty: David Bland, one of my colleagues, came up with the idea of assumption mapping in a two-by-two box. The things that are super important and for which you have the least amount of data are the most critical things you need to solve first. Items that are unimportant and about which you have a lot of data become distractions. From my executive coaching, I know founders want to feel good about themselves. They'll double down on the things they know a lot about and have a lot of data on. Meanwhile, the things they don't know a lot about and don't have a lot of data on are the things that could cause their business to collapse under its own weight.
If you map that on a business model canvas, you want to understand the riskiest things inside each of those nine boxes that could destroy your business. Of those guesses and hypotheses, which ones are most at risk?
The things that are super important and for which you have the least amount of data are the most critical things you need to solve first. Items that are unimportant and about which you have a lot of data become distractions.
The only way that you can do that is to keep making the customers' discoveries. As a result, I believe the sweet spot between "I did it five years ago" and "I love updating it every day" is "what I need to understand the most, what is the safest." I describe it through the Jenga game. When you're looking at Jenga, you've got to figure out which block to pull first. You can't just go and try to rebuild it every time; that's not the game's objective. The goal is to stack these blocks as high as possible by understanding the most critical block I need to pull for the game to continue. The same holds true for business models: which hypotheses and critical assumptions do I need to tackle first to continue to build my business to the point where I become profitable?
Marianna: You made me think of another interesting risk management framework called the Swiss cheese model. If you cut a large piece of cheese, you'll notice holes in some places and cheese in others. The idea is that slicing one piece of cheese identifies one risk. It comes from aviation safety. Pilots usually train to land with one of their engines broken—that's one slice of cheese. Another slice is a tank full of fuel. The third slice would be broken wheels. But when you put all of those slices together, what would a pilot do? That's something they can never train for. If we apply this approach to the business model, I would identify all the critical risks in every area and then see how they can map together because even two small pieces combined can ruin the Jenga building.
Ty: As you spoke, I thought about the military parallel, where they talk about building an airplane as it's falling out of the sky. What happens there? How do we manage that? This kind of metaphor is contrite, but it is accurate for what you're saying. It's like, "How do I manage all of these potential contingencies, ones that are planned and ones that aren't? What do I do to ensure I can still move forward?" At that point, the way you do it cannot be founder-led. It must be based on something other than the founder's passion or focus. That's where teams come in. That is how you manage teams to build expertise in and of themselves.
I was a police officer a long time ago—literally 30 years ago—in 1986, and when we found a traffic accident, we were trained to determine the witnesses who saw what happened. Once we figured that out, we sent them safely to different parts of the accident scene and interviewed them individually. Because I was on the north side of the accident scene, I saw one thing while another person on the southwest corner saw something else. They all saw it, but they all saw a different piece. As the investigating officer, my job was to piece everything together, like, "Oh, here is a holistic picture of what happened based on who saw the accident."
A good leader in a startup who is watching these things happen doesn't try to force their will on others. It's a great way to disenfranchise people regarding what happens in an emergency or in an agile way. But what you're trying to do is understand what people see and understand.
Diversity gets a bad rep, at least in America. But the diversity of thought is more than just diversity because I think differently. It's a way to see the entire picture.
It's a business imperative that, as a startup leader, you need to find the right people. Get them on the bus and help them figure out the best place for them to sit so that they can help you get this thing moving. You may or may not be the driver, but at least you call everyone. You rented the bus, you paid for the bus, and now you're trying to make this bus valuable and offer something to the world. But you can't drive the bus and be the mechanic. You can't do all those other things.
Marianna Krell: You made me think of another interesting question. Usually, people start their businesses based on their passion, or at least something that drives them. But to scale it, they must give up their passion and start focusing and fueling themselves on something else. Is it possible? There is the idea that at different stages of a startup, the team and the management should be different because it's next to impossible for one person to adjust to every stage's difficulties. Is it possible for one person?
Ty Smith: I'm working with some government folks. They were attempting to determine how to make technology commercializable rather than commercialized. In other words, they had reached the point where they had a great product. They were at the initial stages of the business, but they were not the right people. They're great technologists, engineers, and scientists, but they're not the right people to take it to the next level.
People like you and me, who are coaching these folks, must help them understand that. You might be a good person because you have a good head for business and know how to make things happen. But often, the founder is different from the CEO. The technical person, the one with passion, is the founder. But even if you're passionate about something, it must become scalable. It would help if you had somebody who understands what it means to scale a business and how to take it from zero to one.
Marianna: Yeah, I agree with you. We conclude that this is the solution to this startup crisis. How do you scale, then? You learn to delegate, and you distinguish those two roles. I am the founder. I still want to follow my passion, but I won't build the management system as another framework based on my passion alone. There have to be managers. There have to be people who know exactly how to manage. The only thing you can't delegate as a founder is the desire, dream, and vision to build a particular product. Everything else can be delegated, including management. So that's where the management framework comes into play.
Ty: You're offering an excellent articulation of the difference between leading and managing. Even passionate founders can be leaders, but that doesn't mean they are good managers because those are very different roles and boundaries to negotiate—the leader and management boundaries. The leader is part of the management structure because they create the drive, the focus, and the passion. But that doesn't mean they can manage people, resources, time, and technology. Having the capacity to differentiate between those two is what makes for a successful company. You find the right people to help you make this happen, and you pay them well. They will, in turn, make sure that you're successful. But you've got to get out of the way. Allow them to do whatever they need to do.
Even passionate founders can be leaders, but that doesn't mean they are good managers because those are very different roles and boundaries to negotiate—the leader and management boundaries.
That doesn't mean you don't have to watch them from a leadership standpoint. You don't want them to run your business into the ground or be inconsistent with your passion or value proposition. I want to distinguish between the two because passion is an internal measure and the value proposition depends on where the market is and how it works.
Marianna: Yeah, the same with responsibility. Delegating does not imply dumping burdens on others. You cannot delegate responsibility. Some management tools and points should be established where the management team and founders can synchronize and build a trusting environment. When a leader creates a startup, usually, people follow either the leader or the product. Most times, it's the leader who attracts the team. They want to follow this particular person. But at the scaling stage, this leadership model has to diversify. There have to be different focus points and different magnets for people. The leader, the founder, still attracts the C-level team. However, all other management and team layers must have their own interests. And all of that should take place in an environment based on trust and curiosity; otherwise, the startup will not be flexible enough.
Ty: Yeah, adaptation is essential. Natural biological systems (ebb and flow) contain these elements that allow activity. In human systems and human organizational systems, that is a task. When you are in the middle of a task, you can't manage boundaries or understand authorities, and your roles get blurred. If you are clear about what we're here to do and the task, now you can allow people to live in different spaces.
When that goes away, you now have finger-pointing and devolving systems, not evolving ones. You have misuse of people, resources, and technologies because people don't know why they're there. They end up in survival mode. They end up engaging in non-task behavior.
Here is an example. General Electric was the number-one business conglomerate in the world for a long time. Then they lost their task; it got diluted. It went from "We built energy systems" to "GE Capital" and "GE buying TV stations" and all the rest. As a result, their task became very thin. So when the market asked, "What are you guys doing?" they said, "Well, we're trying to expand our cap." The market: "But that's not what you do." And now GE is just a piece of itself. A 100-year-old company went from number one to nowhere in a decade. They are still around, but they are different from the early days.
Think about what happens in a startup. A good startup could ask, "Do we understand our task?" And instead of just going back to the business model, the key to startup governance is being clear on the task. When you need clarification about the task, you must rely on trust. The task reduces the need for trust but increases confidence in the system because we know why we're here. The task is central to ensuring a startup is and remains successful.
Marianna: I fully agree with you on this one. A common, straightforward, and mutually understandable task is the key to at least the first stage of a startup's success. Every uncertainty at this level increases the chance for the startup to fail because there is no transparency between the core team. And so when they talk to their employees, partners, and customers, they share this unclear, dirty vision polluted by fears or the wrong wording.
A common, straightforward, and mutually understandable task is the key to at least the first stage of a startup's success.
Ty: That's right. A task creates the capacity for differentiation. Lack of tasks drives people to guess; when that happens, they coalesce around their imaginations about what's essential and what's not.
How do we keep people from speculating about what they're supposed to be doing and help them get clear? As a startup leader, you must articulate why we're here doing what we're doing. Don't be afraid of it. Talk to your people and be clear about what's going on.
Marianna: Yeah, and this is something I also wanted to share. Otherwise, people start playing. I'm sure you've seen this game 1,000 times. "This is not what I meant." "I assumed something different." "It's self-evident when I say "create a sustainable, successful business." "No, it's not obvious." So I would say that on top of all the technical and management frameworks, I would offer our audience the coaching framework, which would be "speak with your mouth."
Ty: Absolutely. Earlier, we talked about Roger Martin, who wrote "Playing to Win: How Strategy Really Works." He wrote a fascinating Harvard Business Review article about the true test of strategy. I use it all the time, and it's very simple. He stated that you don't have a strategy if you listen to what a leader writes or says and then look at the opposite, which sounds stupid.
To your point about being very clear: if I, as an employee, were to listen for the opposite of what a leader or startup founder says and have no idea what you said, or it's foolish to say, "The opposite of what you said is our position in the opposite of that," So, for instance, you said to build a sustainable global company. What's the opposite of that? A piece of crap that nobody wants to fund. That's not clear because, without clear communication, your employees will say, "I have no clue where I'm supposed to be or what I'm supposed to be doing, so I'll just default to what I know." "I will just default to ensuring I get paid in the morning." And that's not the life of a startup.