So, You Want to Start a Company?

Recently, I sent an email to a friend who wanted to start a company. As I was walking them through some key concepts, it struck me that others might find this information useful as well. So, instead of keeping it between us, I decided to share it with the world.

Using Key Frameworks to Build and Validate Your Business Strategy

In the dynamic world of business, having a solid strategy is critical to staying competitive and growing sustainably. But how do you ensure your strategy is not only robust on paper but also in practice? This is where the concept of a "paper company" comes into play—creating a detailed, hypothesis-driven plan using strategic frameworks that guide you through designing and refining your business model before full-scale implementation.

Why is this important? In today’s fast-paced environments, having a structured approach to building and validating a business model allows companies to adapt to changes, mitigate risks, and avoid costly mistakes. By putting your ideas on paper, using the right frameworks, and validating hypotheses, you can ensure that your strategy is grounded in real-world insights and ready to withstand external pressures.

In this article, we’ll explore three essential frameworks—Business Environment, Business Model Canvas, and Value Proposition Canvas—that together provide a comprehensive toolkit for crafting and refining your business strategy. We'll also take a deeper dive into the Jobs to Be Done (JTBD) concept and discuss why testing and iterating on your hypotheses are vital for long-term success.

1. Business Environment: Navigating External Forces

The Business Environment encompasses all external factors that can significantly impact your business—from market trends and regulatory changes to the rise of new competitors and disruptive technologies. Understanding this environment is crucial because these forces often lie outside your direct control, yet they have the power to make or break your strategy. By regularly scanning your business environment, you can better anticipate risks, spot new opportunities, and fine-tune your strategic approach.

Before you dive into crafting your business model or value proposition, it’s essential to take a step back and assess the external environment. Why? Because externalities—like economic shifts, technological advancements, or changes in regulations—can reshape entire industries overnight. By scanning for these forces upfront, you position your company to be proactive rather than reactive. This gives you the ability to recognize the factors that might disrupt your industry and helps you figure out what you can and cannot influence.

For instance, an industry-wide market shift could be coming, and if you're not aware of it, your carefully crafted strategy may become obsolete. Knowing whether a shift is imminent, and having an idea of when it might happen, helps you plan how to adapt or pivot your business model to maintain relevance.

Certain external forces, such as regulatory changes or disruptive innovations by competitors, are largely beyond your control. However, understanding them early allows you to prepare. While you can't directly change these forces, you can mitigate their impact by staying agile in your strategy. For example, if new regulations are about to tighten in your industry, preparing a flexible compliance strategy can help you avoid disruptions.

Similarly, keeping an eye on disruptive technologies in adjacent markets might alert you to innovations that could render your current business model less effective. The goal is not to stop disruption but to prepare for it—and sometimes even to leverage it in ways that benefit your business.

An integral part of understanding your business environment is identifying if, or when, a market shift will occur. This could be a change in customer behavior, an emerging technology, or a new market entrant that changes the competitive landscape. Assessing timing is key because knowing when a shift might happen allows you to act at the right moment—neither too soon (which could waste resources) nor too late (which could leave you behind).

By building hypotheses around when these shifts might occur, you create a roadmap that positions your business to capitalize on new opportunities or protect itself against potential risks.

How to Get a Good Understanding of Externalities

Achieving a clear understanding of external factors requires a systematic approach:

1. Environmental Scanning: Regularly monitor industry reports, news, competitor actions, and global trends to keep your finger on the pulse of potential changes.
2. Engage Experts: Talk to industry experts, consultants, and thought leaders to gain insights into emerging forces or technologies.
3. Use Strategic Frameworks: Tools like Porter’s Five Forces help you analyze competitive pressures, while PESTLE (Political, Economic, Social, Technological, Legal, Environmental) is useful for a broader environmental scan.
4. Validate Hypotheses: Don’t just speculate—validate your hypotheses about the external environment through research, data, and expert consultation. This ensures that your insights are grounded in reality, not assumptions.

For more on scanning your business environment:

• The Business Model Space - Understand the landscape where your business operates—where you fit within the broader market and what influences your positioning
• 5 Forces Acting Upon Your Business Model - Competitive forces such as bargaining power of suppliers, threat of new entrants, and threat of substitutes that shape your strategy
• Scanning for Threats and Opportunities - Proactively identifying risks (e.g., potential regulatory changes or market disruptors) and opportunities (e.g., new customer needs or emerging markets).
• Business Model Environment: Hypotheses - Develop educated hypotheses about how these forces will evolve, and test them regularly to keep your strategy adaptable

Mastering the understanding of your business environment ensures that your strategy is not only resilient but also adaptable in the face of constant change.

2. Business Model Canvas: Visualizing Your Business Model

The Business Model Canvas (BMC) is a widely used and powerful tool that simplifies the process of visualizing and understanding your business model. It breaks your business down into nine essential components—including customer segments, value propositions, channels, customer relationships, revenue streams, and more—allowing you to see how all the pieces fit together. Whether you run a tech company, a traditional brick-and-mortar business, or even if you’re just developing an idea, the BMC provides a structured, foolproof way to map out and optimize your business strategy.

One of the key strengths of the BMC is its versatility. It’s used by companies of all sizes, from startups to Fortune 500 enterprises, across various industries. Its flexibility allows you to apply it to different areas of business—not just companies, but also for launching a new product, exploring business innovation, or even refining the internal operations of a practice. This makes the BMC an invaluable tool whether you’re working on a well-established business or an early-stage idea.

Another reason the BMC is so popular is its ability to help teams align. Many businesses and professionals use it regularly to explore new opportunities or rework their existing business models. Because it’s a visual tool, the BMC fosters collaboration, making it easier for cross-functional teams to contribute ideas and get a clear, unified view of the business model in real time.

Using the BMC, you can identify gaps, inconsistencies, or areas ripe for innovation. It also helps you understand the relationships between various elements of your business and ensure all components are working harmoniously to create and deliver value.

The BMC has become a widely used tool for visualizing business models across industries. However, it's important to note that there is a variation known as the Lean Canvas, which is specifically tailored for startups and entrepreneurs. The Lean Canvas emphasizes problem-solving and customer-centric innovation by focusing more on risk factors, like key metrics and customer problems, making it particularly valuable for early-stage businesses that need to move quickly and pivot as necessary. Both frameworks offer structured approaches but cater to slightly different needs depending on the maturity of the business and its objectives.

For more on Business Model Canvas:

• Strategyzer: Business Model Canvas – The official guide to the Business Model Canvas from its creators, offering templates and examples to design, analyze, and improve business models
• Creately Guide on Business Model Canvas – A visual guide explaining the BMC components and how to use Creately’s online tool to create your own canvas
• How-to: Business Model Canvas – A step-by-step guide on using Canvanizer’s online platform to build a Business Model Canvas, including tips for each component
• An Introduction to Lean Canvas – A concise overview of the Lean Canvas framework, highlighting its focus on startups and problem-solving, authored by Steve Mullen on Medium

The BMC remains a foundational tool for entrepreneurs and innovators around the world, providing clarity and structure in the complex task of building and sustaining successful businesses. If you had to have only one that would be the one.

3. Value Proposition Canvas: Aligning with Customer Needs

One of the biggest challenges for startups and innovators is achieving Product-Market Fit (PMF)—ensuring that your product meets real market demands. Many businesses make the mistake of thinking from the inside out, focusing too much on their product and features, rather than from the outside in, focusing on the customer and their needs. This is where the Value Proposition Canvas (VPC) becomes an indispensable tool.

The Value Proposition Canvas helps you focus on your customers by breaking down their needs into three critical areas: the jobs they are trying to accomplish, the pains they experience, and the gains they seek. The canvas is split into two parts: one for the customer profile and one for the value proposition. This allows businesses to clearly understand whether their product or service addresses customer pains and provides the gains they’re after.

By using the VPC, you can ensure that your value proposition aligns with the real needs of your customers. It enables you to be customer intimate, offering products and services that truly resonate with them. This outside-in approach helps avoid the common pitfall of building solutions that don’t solve the right problems for the right audience.

If your business or product is struggling to gain traction, the VPC is the tool to use, particularly on the customer side. It helps you identify whether you’re addressing the right audience and solving their most pressing problems. By refining your value proposition to better align with customer needs, you increase the likelihood of achieving product-market fit.

For more on Value Proposition Canvas:

• Strategyzer: Value Proposition Canvas – The official guide to using the VPC from its creators.
• Achieving Product-Market Fit – A detailed article on why PMF matters and how the VPC can help you get there.
• VPC Explained – A comprehensive breakdown of how to use the VPC effectively.
• Leanstack – A platform offering tools and resources for entrepreneurs to validate business ideas and achieve product-market fit using lean startup methodologies.
• Value Proposition Canvas: A Step-by-Step Guide – A LinkedIn article providing a practical, detailed guide to using the Value Proposition Canvas for aligning products with customer needs effectively.

The Value Proposition Canvas is vital because it addresses the most important aspect of any business: the customer. It allows you to fine-tune your product or service offering by focusing on what truly matters to your audience. By ensuring a strong fit between your offerings and customer needs, you not only increase the likelihood of success but also foster deeper customer loyalty and satisfaction. In today’s competitive market, being able to understand and react to customer needs quickly and effectively is what separates successful companies from those that fail.

4. The Power of Jobs to Be Done (JTBD)

A critical component of the Value Proposition Canvas is the Jobs to Be Done (JTBD) framework, which focuses on understanding the specific "job" the customer is trying to accomplish when they engage with your product or service. In simple terms, JTBD posits that customers "hire" products to fulfill their needs or solve particular problems. This shift in perspective emphasizes outcomes over features, enabling businesses to align their offerings more closely with real-world customer tasks.

What JTBD Is Not: It's important to clarify that JTBD is not about demographics or customer personas alone; rather, it focuses on the motivations behind why customers make certain choices. It moves beyond surface-level attributes like age or occupation, aiming instead to uncover the underlying reasons driving customer behavior.

The concept, pioneered by Clayton Christensen, has revolutionized customer-centric product development. By identifying the specific jobs customers are attempting to accomplish, businesses can tailor their offerings more effectively, resulting in solutions that genuinely resonate with users.

For more on JTBD:

• Clayton Christensen: The Theory of Jobs To Be Done – An article by Clayton Christensen that introduces the JTBD framework, emphasizing its importance in understanding customer motivations and driving innovation
• JTBD.org: What is Jobs to Be Done? – A comprehensive resource explaining the JTBD framework, its principles, and how it can be applied in product development and marketing
• Jobs to Be Done: A Framework for Innovation – This video succinctly explains the JTBD concept and provides real-world examples of its application
• The JTBD Canvas - A guide that provides an overview of the JTBD Canvas, including how to use it to articulate customer jobs and align product development with user need
• Jobs to Be Done: A Framework for Customer Needs – This article explores the JTBD framework, detailing its principles, significance, and practical applications in understanding customer needs and driving product innovation
• "Competing Against Luck: The Story of Innovation and Customer Choice" by Clayton Christensen – A comprehensive look at how to apply the JTBD framework in various business contexts
• "The Innovator's Solution" by Clayton Christensen and Michael Raynor – This book further explores innovation and the role of JTBD in creating successful products
• “What Customers Want: Using Outcome-Driven Innovation to Create Breakthrough Products and Services” by Anthony W. Ulwick – This book offers a detailed methodology for applying JTBD in product development

Understanding the Jobs to Be Done (JTBD) framework is crucial for any organization aiming to create customer-centric products and services. By focusing on the specific outcomes customers seek rather than just demographics or product features, businesses can develop more meaningful solutions that resonate deeply with their target audience. Embracing JTBD not only enhances product-market fit but also fosters innovation and growth by aligning offerings with real customer needs. As you explore this powerful framework, consider how you can apply its principles to your own products and strategies for lasting success.

5. Validating Hypotheses: Testing Your Ideas

Having a well-structured strategy on paper is a great start, but the real test comes when you validate that strategy in the market. Validation involves systematically testing your business model hypotheses to determine if they hold up under real-world conditions. This process is essential for identifying potential flaws, understanding customer needs more deeply, and refining your offerings before committing significant resources.

What Is Validation? Validation refers to the process of testing your assumptions about the business model, customer behavior, market demand, and overall strategy. It helps you gauge whether your ideas resonate with customers and if your solutions effectively address their needs. Validation can take various forms, including customer interviews, prototypes, pilot programs, and A/B testing, each aimed at gathering feedback to inform future decisions.

While I don’t work for Strategyzer, I find their tools incredibly useful for structuring business models and testing them in a way that reduces risk and increases the likelihood of success. Their frameworks provide a systematic approach to validation, allowing you to iterate and adapt your strategy based on real insights from your target market.

The Risks of Not Validating Failing to validate your business model can lead to long-term risks that may jeopardize the success of your venture. Without validation, you might continue investing time and resources into an idea that does not resonate with your customers or fails to address a genuine market need. In contrast, short-term failures can be seen as learning opportunities that inform future strategies. By validating early and often, you can pivot quickly, minimizing potential losses and avoiding the costly mistake of scaling a flawed concept.

The Importance of Failing Fast Failing fast is a crucial principle in modern entrepreneurship. It means quickly testing your hypotheses, gathering data, and learning from the results to make informed decisions about the next steps. Failing fast allows you to experiment with different approaches, identify what works, and pivot when necessary without incurring significant costs. This iterative process not only fosters innovation but also cultivates a culture of adaptability within your organization.

For more on Validation:

• Testing Business Ideas: A guide to systematically testing and de-risking your ideas.
• The Invincible Company: A comprehensive resource on building a company that constantly innovates and remains resilient.
• Lean Startup by Eric Ries: A foundational book that introduces the Lean Startup methodology, emphasizing the importance of rapid experimentation and validated learning.
• Running Lean by Ash Maurya: This book expands on Lean Startup principles, providing a practical approach to validating business ideas through continuous testing and iteration.
• The Startup Owner's Manual by Steve Blank: A comprehensive guide to customer development, offering insights on how to validate business ideas through direct customer feedback and iterative learning.

Validating your business hypotheses is a vital step in ensuring that your strategy is not only sound on paper but also effective in the marketplace. By embracing a culture of experimentation and leveraging tools like those from Strategyzer, you can navigate the complexities of entrepreneurship with greater confidence, reducing risks and increasing your chances of long-term success.

Conclusion: Strategy Only Works with Validation

In the ever-evolving business landscape, using frameworks like the Business Environment, Business Model Canvas, Value Proposition Canvas, and Jobs to Be Done is crucial for crafting a solid business strategy. Yet, the secret sauce to success lies in ongoing validation. By continuously testing your hypotheses and iterating based on real-world feedback, you ensure that you’re not just creating a "paper company," but building one that can truly thrive and scale in practice.

Integrating Go-to-Market strategies through the concepts of "Where to Play" and "How to Win," while consistently validating your assumptions, sets you on the path to developing a business model that’s both innovative and resilient.

If you’re keen to dive deeper into these concepts or explore how to apply them to your business, feel free to reach out. Let’s keep the conversation going!