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The Wilson Framework

The Wilson Framework©

24 Minute Read | By Connor J. Wilson

What is the Wilson Framework©?

The Wilson Framework © is a proprietary framework method for preparing for, launching, and running a startup successfully through a series of processes and planning that occur prior to the start of the business.

It is based off of UBC Sauder Professor Tim Silk’s New Product Development MBA course in which he teaches what is best described as an empirical approach to new product design. This framework builds on that, drawing from the field of business architecture, to apply empirical thinking, essentially data driven decision making and planning, to not just product development, but to the development of an entire organization.

This framework is applied in 4 different strategic components that build off each other, cumulating in a project plan for your startup that ties them all together.

  • Product/Service Selection Planning
  • what your startup will sell in what industry
  • People Planning
  • ensuring you have the right team
  • Organizational Planning
  • ensuring that when you have the right team and the right product, you can manage both to effectively sell your product/service and scale your business
  • Technological Planning 
  • ensuring your company is maximizing all available technology to make your product development, people, and organization more efficient and effective

Why is it called "The Wilson Framework©"

After showing this approach to several professors at UBC, I received lots of positive feedback and interest in this approach, with one IT professor comparing it to the Zachman Framework, a different but comparable model of enterprise architecture. He suggested I call mine the Wilson Framework©. Given that this is effectively what I have devoted my life to since January of 2017, working, researching and thinking on it nearly full time on top of full time school and because it is essentially a cumulation of my entire personal approach to entrepreneurship, I decided this name was appropriate for both my own personal brand and because I truly believe this is a superior method of entrepreneurship than operating off of hunches and half baked ideas, and giving it a unique name such as this will help it spread and hopefully become adopted.

How is it different / useful?

The way most startups begin is the founders have an idea, usually about some demand they think is unmet or a problem that is unsolved, they build it, and then try to find the market for it. The problem with this is founders are often very romantic about their own ideas because everyone typically thinks their own ideas are the best. This causes tunnel vision about the broader market and about other possible solutions to solve the problem or demand their trying to fill, if that problem or demand even exists, which it often does not, or if it does, isn’t significant enough for market adoption.

Consider this scenario. Let’s say that the reason people wait an hour in hospitals for appointments that might only take 5 minutes (something that is common in Canada) is because hospital staff spend a lot of their time on data entry, writing on charts, etc. An entrepreneur might think to themselves, “I’ll make a text to speech program that will speed up this process, allowing them to see more people in less time!” This sounds good, it’s a solution after all, but in practice it’s rarely that simple, and just because it helps solve a problem doesn’t make it a good idea.

Imagine having this idea, spending 6 months of your life building it, getting funding from investors for it (assuming you even can without demonstrable market validation), only to find someone else creating a more integrated database technology for hospitals that doesn’t require any data entry that then completely outcompetes your product. Another, possible worse, scenario is that you think this problem exists, but in reality data entry isn’t even the problem, maybe it’s actually a lack of staffing causing these wait time instead, but you didn’t know that because you didn’t do good research first. You now need to try and pivot, in order to salvage whatever you have (which is likely has an opportunity cost to it high enough that it’s not even worth doing when you consider everything you’ve done up to this point as a sunk cost, as you should) or quit and try another idea.

The likelihood that your initial investor will fund a pivot or your next idea is likely going to be greatly lessened by the fact that you already lost their initial investment, meaning it’s now harder for you to get funding for your next idea, and you’ve now also wasted 6 months of your own life working on something that ultimately failed, time that could have been spent building the product or service that will be your big break. Yes, failure is good in that we learn from it, but success is what we strive for, and all that failure could possibly have been avoided by not limiting your problem resolution of the data entry problem to just your initial idea. This is called anchoring, and it’s why so many people get tunnel vision, because they limit their thinking to an initial idea rather than looking at the bigger picture or fully understanding the market. It’s like shooting an arrow at a target you can’t see instead of first trying to find the target and taking aim.

This is a huge problem in today’s entrepreneurial ecosystem with more than 95% of high tech startups failing because they were unable to make the best product for a market (the #1 reason, and a huge factor in most others, why startups fail according to a study by CB Insights (https://www.cbinsights.com/research-reports/The-20-Reasons-Startups-Fail.pdf).

The Wilson Framework © seeks to greatly mitigate this risk, by taking a very empirical approach to what product/service your startup will sell and in what industry, who will be involved in that process, how the company will be run, and what technology it will use to do so, all prior to starting the venture. Simply put, the Wilson Framework © is an alternative starting point for startups that precedes the process of building a product and then trying to take it to market, guiding the ideation process.

The Wilson Framework© process is a much lengthier build up to startups but it results in massive amount of time saved and lots of other benefits in the long run when you consider all the changes you’d have to make or lost time from creating a suboptimal product or a poorly run organization with a bad team and the wrong tech. Naturally this process should be followed by rapid prototyping with consistent customer and market feedback loops throughout the actual development stage as your actual product will in no way be perfect, and should not be released so that you’re not embarrassed by the first release (or even subsequent releases for that matter).

This model is not about creating a perfect product or organization, rather it is about validating a market and attempting to use data driven design, best practices, and industry experts to mitigate the massive risk that every startup faces in order to maximize chances of success for the startup as well as to accelerate growth. It also is intended to guide the rapid prototyping process ensuring you're not rapid prototyping on a market or problem that does not exist, which can often be overlooked when a product fails because of all the possible reasons why, be it technical, psychological, or one of a million different reasons.

Considering all this research and planning happens "pre-incorporation", and saves huge amounts of development time, your startup will also inevitably be worth more money because to investors, they will just see a rapidly growing company without many of the growing pains. Your income statements from incorporation will show only the accelerated development phase, not the lengthy product selection and planning phase prior. Additionally, because of the time value of money (in that a dollar a year from now is worth less than a dollar today because you can invest it and make a return), if you can cut your development time in half, your startup could theoretically be worth more than double what it would have been worth otherwise.

What’s Involved? (Components)

Product/Service Selection: 

Step 1. Identify industries of interest,
starting with whichever you are most passionate for. Being passionate for whatever industry you're in is incredibly important, more so than macro level industry profitability or attractiveness. If you're not passionate, you will be outcompeted or burnout. For me, these are for-profit social enterprises in high social impact industries (see the list below for what I believe are the most impactful).

Step 2: Conduct industry analyses 
to determine which are the most attractive & ripe for innovation, through identifying key problems within these industries and conducting further research to validate these problems and in particular, determine the economic impact of if they were solved. Impact can be defined as how positively you affect each entity (individuals or organizations) x the number of entities you positively affect. You can affect a lot of ppl in a small way, or a small group of people in a big way, or if you're really lucky, you have an idea that can affect a lot of people in a big way, like the iPhone, or the Automobile. This also involves looking the macro and micro economic factors like how competitive the industry is, such as whether it's in oligopoly, or monopolistic competition for example.

Step 3. Prioritize these problem/industry sets,
based on which industries were determined to be the most attractive, combining that with the problems within those industries that seemed the most attractive, starting with the currently perceived "best one" - ideate on all the possible solutions to solve that problem or market demand. Ie. not coming up with one idea and then trying to build it, but rather coming up with every possible solution one can think of - and THEN conducting market and technical validation research on each of those ideas to determine the optimal one(s) based on your criteria (I have a large list of these, see at the bottom of this page), as well as technical feasibility and required resources.

Step 4. Repeat #3 for each problem 
until no better problem/solution idea sets are occurring. If you get lucky with the first one that would mean each subsequent set were inferior enough for you to decide to end this process, and select that as your product/service for your new startup. Often there will
always be a better or bigger problem to solve, so this step is typically where you must go with your gut on where you feel you will be most effective as even if there is a better or bigger problem, you are not necessarily the best person to solve it. 

It is important to note during this process that it is different from simply coming up with an idea for a product, and asking people for feedback on it, in fact all research should be on validating the problems and impact of if they were solved, rather than the ideas themselves. If Henry Ford had asked people what they wanted, they would have said faster horses. He knew the problem of transportation was the real issue, and thus the automobile was created. People never would have asked for automobiles because they cannot ask for or conceptualize well enough solutions to these problems that they do not know exist. All research should be asking indirect questions and following marketing research best practices to avoid all types of biases and sampling error in order to avoid false positives, negatives, and minimum maximums (where a solution is found, but a better one is missed).

People Planning:

Most startup founders have 1 or 2 friends or coworkers who wanted to start a business and out of convenience started one together. This sounds commonplace, because it is, but when you consider that 23% of startups that failed failed because of they didn’t have the right team (the 3rd highest reason for failure according to CB Insights), it is important to critically assess the efficacy of this process.

Imagine you were the hiring manager at some business that was hiring a new COO. You, overseeing this process, are only able to interview 2 or 3 people because that’s the number that applied. Do you think you would be as likely to find an excellent COO with only these 3 applicants than if you had 50 applicants or more? Almost certainly not. The more people who apply, the law of large numbers dictates that the likelihood that at least one of them will be a good fit will be higher.

Now apply this thinking to startups. If your co-founders are such an integral part of a startup’s success, why are we starting them with 1 or 2 people out of the small few we know want to start a business and why do we think that these people, who may be perfectly competent to run a small scale operation with a team of 5-10 people, are qualified to be eventual C-Suite executive managers in 1000 person company, which is what every investor will be asking themselves when asking them to give you their money help get you to that level.

Co-Founder teams, like everything else in your business, needs to scalable. Unfortunately, most entrepreneurs do not have 50 other entrepreneurs lining up to start a business with them who can be interviewed and filtered out until the best ones are found, which is why this is such a problem and is also why people don’t typically consider its importance. That is the problem that the Wilson Framework © seeks to solve.

The process for this is not as neatly defined as the process for product/service selection and design, as it is extremely case based on the individual, rather it is a way of thinking and strategy for personal branding and networking that gives one a network large enough that instead of having a network of just a few people interested in starting a business with you, you have many, such as 50 or more, of whom you can draw from to co-found with. It is about immersing oneself into the startup ecosystem in which they live, or moving to a more favorable one, and positioning oneself as a thought leader in that space. This website, and my own personal brand marketing strategy, with the call-to-action of connecting and developing a relationship with me for the people in that space (entrepreneurs, mentors/advisors, and investors) is a visual representation of this strategic component of the Wilson Framework ©.  

Organizational Planning:

To create a company, you must do more than simply product development, marketing, and sales (your profit centers, and the things that people on the outside, such as investors, see). You must also do organizational development. These are things like developing your corporate culture, human resources, finance, accounting, logistics and operational processes, etc. These are the things that create the effective system of delivery and deployment for your product or service.

Profit centers create your revenue, and subsequently your profit, create demand for it, and sell it. The enablement of those profit centers however, such as being able to hire and retain good people, budget and acquire capital to pay for them along with payroll, legal requirements and taxes, determining exactly how to move your good from your storage to the clients hands, etc, all these things require time and effort to create, while not directly contributing to your revenue, which is why they are called your cost centers, the things you need and need done well but want to minimize the time and money spent on them because they don’t directly have a return. Any startup founder worth their salt will know that as you grow and scale a business, the amount of time and energy that must be devoted to these activities (which are often avoided or put to the side when you’re just starting out) increases drastically to continue to grow and scale.

Imagine that in one year, spending 50% of your time on profit centers, and 50% of your time on cost centers, you could generate $1m in revenue in a company at a $5m valuation. Now imagine you could reduce the time spent on cost centers by 50%, but you still work for a year. Now you are spending 75% of your time in that year on Profit centers and perhaps you’re now able to generate $1.5m, this would mean your valuation would also increase, but would not increase by the 50% linearly to your revenue increase, because not only did you reduce the time spent on cost centers, but you also didn’t have to pay people for that time you saved (assuming you have salaried staff at the stage in which you are doing these activities), and because of the time value of money again, being able to generate more in the same period of time, will result in an exponentially higher valuation, perhaps at $10m instead of $7.5m if it were linear. Reducing the amount of time one must spend in a startup on cost centers is the core of my organizational strategic component of my approach to startups, and it is essentially the creation of as many of these resources as possible ahead of time, prior to starting a business.

This is possible to do for anything that is not product specific, things known as “industry agnostic”. For example, a good hiring process will not vary much from business to business, corporate culture has frameworks and best practices associated with it, and even office design has concepts that be categorized and put into a planned framework to use for when you are running your company. By planning all these organizational strategic assets ahead of starting one’s company, you can drastically reduce the time required to be spent on these activities because you’ve already done half the work (it can be more or less, this is a generalization) prior to starting. Additionally, you can draw from best practices, industry experts, and personal experience to have these plans audited to be optimal to what is recommended.

Finally, because profit centers are what people see, and the cost center activities are usually so fragmented and scattered across multiple documents, investors typically only ask for a pitch deck, business plan, probably some proof of concept and some supporting documentation and then conduct some due diligence. But by having all this cost center activities worked out, you can instill massive amounts of investor confidence by being able to present it to them in a comprehensive collecting of documents that goes beyond a simple business plan to provide validity to your claims that you’re on the right track to success, something they probably don't see very often. Imagine spending 6 months working out your logistical plan for how you'll be able to expand to new cities or markets, but during that 6 months you weren't generating sales. By having all your work on these logistics centralized and organized in a systematic fashion, you would be able to tangibly demonstrate that output for your time to an investor who might otherwise just see a stagnant company during that period based on just the business plan or financials. Transparency is a good thing.

Planning and creating these assets is what the organization strategic component is all about. Like the people component of this framework, this is not so much a process as it is the curation and creation of best practices, industry experts and benchmarks, and personal experience, to figure out how you want your organization to run prior to starting it, rather than having to start completely from scratch when operating. As such, it is also highly dependent on the individual. For example, some founders may use this framework of thinking to design a company that is completely distributed and has no physical office space for colocation, which would seriously affect how they structure and manage company culture and many other processes. This framework then is not to be applied as a one-size-fits-all solution, but rather a system of thought for designing your own. My own version of this is, how I see different departments and cost centers within my company working are outlined in my own private and proprietary comprehensive project plan using project management software.

Technological Planning:

The final component of this plan and framework is the curation of all available technological tools, frameworks, platforms, software, etc. available to use for as many use cases as possible as outlined in the organizational plan. For example, if we identify that a startup will need to hire people during its existence, we know that it is possible to find technology to assist in automating or optimizing that process, something that does not require the product to yet be known. The technology in this scenario would be curating a list of all the best applicant tracking systems (ATS) to eventually use when running your business.

Finding technology to support one’s business is another cost center, as you’re doing vendor research or developing it yourself, costing you time and money to do so, rather than focusing on product, marketing or sales. You can eliminate the need to do most of this research by curating all this technology ahead of time and categorizing it by function and process. This also has the added benefit of being on the “bleeding edge” of technological competitiveness for when you’re running your business, because you will have a toolbox of exceptionally useful software, such as perhaps an email finder tool to find the contact lists of all your competitors, or development frameworks and SDK’s that you might not otherwise had known existed that allow you to develop your software product (assuming in this case your product is software) twice as fast. The possibilities are endless when your technological toolbox is bigger than it otherwise would have been.

Creating this toolbox is what the Technological component of this approach is all about. Like the people and organizational components, this is not a process, but a system of thought. That being said, the results of this framework component are something that can be shared more easily, as the result is a tangible, comprehensive list of technology to use in one’s business. I am currently in the process of developing my own which will be shared to members of the Vancouver Young Entrepreneurship Network (see here) and other associations of mine for free.

Project Planning: Putting It All Together

The final part of the Wilson Framework © is taking all these strategic components and compiling them into a comprehensive project plan for your next startup. This has the added benefit of accelerating your startup’s growth because you can spend less time figuring out what you need to do next or what needs to happen. It allows you to more efficiently allocate human capital because when you outline all components that must be completed in the startup project, you can identify dependencies between tasks and reduce slack and waiting for direction. For example, we know that you cannot build your brand architecture until after you’ve sufficiently developed a product typically, because the brand is dependent on the product, but setting up an accounting system is not dependent on either task, so it can be accomplished simultaneously. Using this knowledge, we can allocate human capital more efficiently because we know when we will need what worked on.

This also allows us to budget more effectively, because we can approximate, using what’s called the Project Evaluation Review Technique Beta Distribution (link here) to confidently predict within certain standard deviations when milestones will be reached. For example if we know approximately that the earliest completion time of our product development with our given resources and time is 3 months, and the longest time to completion is 6 months, we should cautiously budget for 12 months of runway (money) so that we give ourselves a safety buffer and have enough money to sustain us throughout that phase before we need to get our next financing round (assuming no revenue).

When we put all these components into a comprehensive plan as I am doing, it allows us to accomplish this, stick to a timeline, and conveniently it does the job of providing direction and instruction to everyone involved if the plan has been made well. The reason McDonald’s is such a successful company is not because they sell cheap burgers, it’s because they have made their entire business systematic such that pretty much anyone can do any job and the end-product can be replicated many times over. By systemizing your company through this sort of plan, you can hire great people who may not know how to do something, but can easily follow instruction and guidance to accomplish it well regardless.

This also results in not needing to spend much of your time instructing, training, or giving direction because information and instruction can be much more easily distributed. Given that a lot of time in startups is just spent trying to figure out what to do next, and conducting research on the best way to do it, this plan provides a nearly complete list (that can be added to and reprioritized as needed) such that you and your team can spend more time working and less time trying to figure out what needs to be done next or how to do it. Additionally, because this plan is built prior to even having the product decided upon, it is made to be flexible, such that it can be easily adapted (as it must be as the company evolves and the product is chosen) to fit operational needs.

Finally, all these great ideas, best practices, and experiences we gain throughout our lives that can be applied to make or do things better are often forgotten. For example let’s say in university you took a class on optimal powerpoint presentation design. Years later, you need to design a powerpoint for an important presentation you are doing for a client, but because we do not always remember everything we have learned or are able to always recall that information at the most convenient times, and because you are pressed for time and must get this presentation completed and do not have time to conduct research on how best to accomplish it, you create this presentation without using that knowledge you learned, and thus the end result is a suboptimal presentation to what you otherwise would have been able to create. This is an issue of information recall.

If you were instead following a project plan that gave you instructions on how specifically to create your presentation (such as what you may have been given in school) or at least provided direction on what it should include or be structured, based on these best practices you learned years earlier, you wouldn’t have the need to do research on how best to create this presentation because you would immediately have that information recall to be able to create this optimal presentation. If you were someone else working on this presentation who did not take that class on best practices for presentation design, it wouldn’t matter either, because you would be drawing from that knowledge to create an optimal presentation because you were following this plan.

The Wilson Framework © project plan component seeks to provide this level or recall and access to useful and relevant information at every level of operation and development of your startup through drawing from personal experience, best practices, and industry experts at every level of the project’s task instructions. This can invariably improve your business in ways you can’t even imagine. Imagine if everything you did was a best practice. That’s what this is attempting to achieve, and while it's impossible to cover and convey everything in this way, it's considerably more effective than just "winging it". One of my favorite sayings is by failing to prepare, you are preparing to fail. The Wilson Framework© tying in all these components in this project plan is about avoiding that failure.

How Can I Use This?

Get Involved

There are two ways to get involved in using this framework for your business. The first way is to hire me for my freelance consulting work to help you apply this thinking in your business. See the consulting page on this website for more information on the consulting modules I offer.

The second way to get involved in this framework is to work with me (see the "Work With Me" page on this website for more info on what that is like), as either a coworker (co-founder, employer or employee), a mentor or advisor, or as an investor who would like to invest in me to apply this. In September 2017 I will begin my personal brand marketing campaign for the people component of this framework and plan at which point I will be looking for coworkers, mentors/advisors, or investors. Connect with me by clicking the button above to establish a dialogue and get involved.

Industries of Interest

If you are interested in getting involved by working with, mentoring/advising, or investing your time or money in me, then this is a non-exhaustive list of approximately where I will be applying this framework: for-profit social enterprises in the following high social impact industries.

  • Education
  • Problems Relating To: How people acquire information & are able to demonstrate/distribute that knowledge
  • Example Companies: Udemy, Codecademy, Khan Academy, TED Talks, Wikipedia, Rate My Professor
  • Example Problems: Accreditation of Free Resources, Personalizing/Curating Curriculums, Access to Education, Talent & Passion Discovery & Enablement, Transparency & Accountability in Education Systems
  • Healthcare
  • Problems Relating To: How people stay healthy
  • Example Companies: 7 Cups, Fitbit, WebMD, EpiPen, EQ Virtual
  • Example Problems: Wait times & Access, Fragmented Patient Records, Ageing Populations, Natural Disaster Response & Recovery, Drug Abuse
  • Finance / Commerce
  • Problems relating to: How people get/keep/manage money
  • Example Companies: Mint, Credit Karma, Paypal, Square, Shopify, Kiva, Kickstarter
  • Example Problems: Unemployment/Underemployment & Poverty, Encouraging Entrepreneurship, Democratizing Financial Systems & Access to and Management of Capital (reducing income disparity)
  • Real Estate/Infrastructure/Transportation
  • Problems Relating To: Where/how goods and people live and travel
  • Example Companies: Tesla & The Boring Company, Hyperloop One, Ryanair, Otto, AirBnB, Flip, Shyp
  • Example Problems: Involuntary Migrations (refugees), Inefficient Land Use, Travel Times & Costs, Rising Housing Prices & Access to Ownership, Transportation & Logistics
  • Agriculture / Aquaculture / Water
  • Problems Relating To: What/how people eat/drink/acquire food/drink
  • Example Companies: Coastline Market, AVA, SmartSweets, Instacart, BlueApron
  • Example Problems: Water/Food crises, Growing Food in Harsh Climates (eg. space, drought), Inefficient Supply Chain Intermediations, Perishability
  • Free and Fair Government & Civil Engagement
  • Problems Relating To: How governments are held accountable to citizens & govern countries fairly and efficiently
  • Example Companies: Trudeaumetre.ca, OpenGov, Socrata, CitizenLab
  • Example Problems: Online Voting, Voter Turnout & Representation, Politician & Party Accountability, Social Benefits Management, Citizen Tracking & Management, Citizen Relationship Management & Civil Engagement

Why social enterprises in these high impact industries?:

  • Companies with large social impact attract and retain the best employees easier
  • Problems Relating To: How people acquire information & are able to demonstrate/distribute that knowledge
  • Organizations and individuals are much more likely to support and fund social enterprises
  • Problems Relating To: How people stay healthy
  • Founder burnout is reduced & people are typically more passionate & happy doing impactful work than not
  • Problems relating to: How people get/keep/manage money
  • This all means, ironically, that by not focusing on just making money, you are more likely to make more than if you were while also helping the world in a bigger way and feeling great about your work and
    its impact.

Useful Questions for Analyzing an Idea's Business Model Attractiveness

Macroeconomic Analysis

  • How difficult will staffing be as you grow?
  • Easier the better; the less staffing requirements (ie. The less human capital intensive) it is to provide, manage and sell your product or service the better.
  • What laws, regulations, treaties, and other political factors could affect thebusiness?
  • Is there any risk of regulations or restrictions? What inherent risks exist in currency, shipping, or supplier pricing fluctuations caused by these? Can they be mitigated or eliminated if so?
  • How does the market value it? (Valuation multiples):
  • Will you be able to raise money at a valuation that you are satisfied with? How difficult will be it be to raise enough capital at this threshold? Use comparable public companies to determine what their valuation multiples are based on and what they are to determine this. For example, service companies are typically valued at only 0.8x of their annual revenue - make sure you do your research for your industry and product/service.

Microeconomic Analysis

  • Who is your competition and what is the market structure?
  • Easier the better; the less staffing requirements (ie. The less human capital intensive) it is to provide, manage and sell your product or service the better.
  • How will competitors react to you as a new entrant?
  • Eg. If you are developing tech, how hard would it be for a large competitors with much more capital to outspend you to innovate faster? Would it be logistically feasible for them?
  • What is the product/service and what competitive advantages does it have?
  • Is it marketable, can it be explained in a couple short sentences, and how is it better than existing offerings if applicable? It should be 10x better than existing offers in order to get market adoption, as people overvalue what they have by a factor of 3, and companies overvalue what they sell by a factor of 3, meaning you need to more than 9x better, aka. 10x better.
  • Does it create barriers to entry, if so how?
  • How can you mitigate the risk of others seeing the opportunity and taking it from you? For example, if you are making some app, what is to stop some bigger company from putting a bunch of programmers in a room for a weekend and replicating your app and backing it with superior brand and resources? What is proprietary?
  • Who is your target market, how big is it, and how much of it could you reasonably capture if all goes well?
  • Do they have money to spend and the proportionality to do so on your particular product/service? Is the market size big enough to reach your desired level of growth and attract investors, and how feasible is it to actually secure this?
  • How much does it rely on each strategic partner/supplier?
  • The less reliance on each supplier or partner the better. That way if you lose them, it doesn’t kill your business. This also gives you more bargaining power.
  • Does it have a “chicken and the egg problem” (Network Externalities)?
  • “Chicken and Egg” strategy problems occur whenever the value proposition to two separate groups is dependent on penetration in the other. Eg. No one would use Craigslist to buy/sell things if other people were not already doing so. This is bad (expensive, slow), and typically requires large investment into marketing campaigns to get over or taking advantage of focussed networks. (Can be an excellent barrier to entry however eg. Facebook, which was not first to market like Friendster and MySpace, but they took the college route and were able to get adoption that way, while MySpace and Friendster had this network externality problem)
  • Is the business seasonal? If so, how much and how will that effect survival through slow months (eg. Turnover)?
  • For example, if you're hiring students, will they go home during the summer? If your largest market is internationals and travellers, will they still be around during off tourist seasons? If it is seasonal, how will we adapt our business model to survive on the off months. If there is no work during those months, how do we keep our staff without having to rehire and retrain every season.
  • Does it have economies of scale? How important is this to the model?
  • Is operating at a large scale more efficient than operating on a small scale? Look at the market structure to help determine this. Do you need these economies of scale to be competitive and attract investment, if so how long would it take to secure?

Financial Analysis

  • Does it have a clear pricing/revenue model?
  • The more clearly defined, the easiest it is to hire sales staff for it. Complexly quoted and dynamic service or product offerings are much more difficult to hire and pay salespeople for particularly when heavily based on operational capacity as they won't know what they can sell or know how much they'll make, and to forecast revenue from for management and investors.
  • How much will it cost vs. how much it could make? How quickly can you get it to revenue?
  • Return on investment = opportunity cost, not just for you, but for investors who can help make it a reality. All projected cash flows need to be discounted back to the present value from their future value to do this accurately (as much as possible anyway). Create budgets and financial
    projections for this.
  • Can it self fund, and if not how will it be funded what will be your burn rate?
  • Can it self fund, and if not how will it be funded what will be your burn rate?: Where will the initial capital injection come from if required, and if so how much is needed? How long until you run out of money to pay your expenses assuming no other outside investment? What happens then?
  • Does it generate reliable & consistent recurring revenue?
  • Better than discrete: much more predictable forecasting, better for customer feedback & process improvement. It’s far easier to keep customers than get new ones. Aka do you get repeat customers, how frequently do they buy, and can you keep them coming back?
  • How high is customer concentration?
  • Generally speaking, if a single customer accounts for more than 20 percent of revenue, or if a small number of customers (three to five) accounts for more than 50 percent of revenue, the company may have a customer concentration issue. This is a significant amount of risk, and also represents a lack of bargaining power.
  • What is the expected customer acquisition cost and lifetime value per customer, and average revenue per user (ARPU)?
  • Lifetime value of a customer must be more than the expected customer acquisition cost otherwise you will never make any money.
  • When do cash inflows occur relative to cash outflows (eg. Do consumers pay up front prior for service)?
  • It is vastly preferred to have cash inflows come before cash outflows. If cash outflows come first it will prevent your ability to scale quickly.
  • How do costs grow with scale; what is the expected operational efficiency (SGA expense (sales, general, admin expense) to gross sales ratio?
  • Scaling is expensive and risky. What new management, staffing, and bureaucratic expenses will you need to take on as you expand? How will this affect the bottom line?

Logistical Analysis

  • How difficult is business development? (the acquisition of sales & strategic partnerships)
  • Is it easy to secure partnerships and new sales? How big is each sale? If it takes a long time to make each sale, and each sale isn’t worth very much, then you may want to review your revenue model. The ideal solution is the ability to have a high volume of high value sales, though there is usually a tradeoff between time spent to get a sale and the value of the sale itself.
  • What existing technology is available to help?
  • Can you use existing technology to grow your business in ways previously not possible? Facebook and Linkedin are great examples of how businesses are now able to use connectivity technology to rapidly grow their teams and run more targeted advertisements cheaply.
  • What are the steps to success? How long will it take?
  • Think about the future state you want, then work backwards. How can you achieve these milestones? Is it feasible?
  • Do you have the right team?
  • You need: culture fit, shared values (myers-briggs is great for this, https://www.16personalities.com/ ), shared vision, different but complimentary skillsets that covers everything required to start and grow, time commitments, defined roles & hierarchy (be cautious about working with friends because of this), and many other things. Make sure you have A players, not B players.
  • How much control over product delivery/sales does management have? Is it reliable?
  • Quality control, consistency, and scalability suffer without control (this is why software usually attracts more investment than human delivery). Eg. If you revenue generation depends on people who are not always dependable, that is a problem. Account for this systematically; build into the model the realistic and conservative assumption that the average person is not 100% reliable, then figure out how to ensure quality control and sales. (SaaS is a great example of solving this problem)
  • Why are you making/doing this & what problem are you solving?
  • Money as a motivation is not enough, you will burn out, not be able to motivate others (especially when cash becomes tight as it almost always does in startups), and fail otherwise. You need a convincing “why” because people don't buy what you do they buy why you do it. Social impact factors work great for this and are easier to get money for.
  • How difficult will operating across multiple cities or markets be? How hard will it be to growto those cities/markets? What would need to happen?
  • Consider what it will take to expand to a
    new city, a new country, or a new continent. If applicable to your desired rate of growth, how will that affect everything else? Costs, human capital, investment, etc. If you can avoid it, it is better to consolidate a market first, and then rapidly expand using your base as a financial springboard.
  • What is the expected annual & monthly churn rate?
  • Look at different benchmarks for your industry, but generally you want to minimize the amount of customers who stop using your service (churn).
  • What is the expected daily active user and daily monthly user rate as a percentage of total customers? How is this expected to change?
  • Having a lot of users with few actually using your service isn't progress. Optimize for users, not downloads.
  • What is your business's viral coefficient and the velocity (speed) of that exponential coefficient
  • ie. what is the average organic growth rate per customer (coefficient greater than 1 indicates for every 1 customer you have, they will generate 1 organic customer as well per time unit defined in granularity)). This is difficult to predict for a startup, but what strategies can you use to maximize this, how does this work with your model? For example, a new type of paper is not likely to have a high viral coefficient, whereas a new multiplayer video game might since users could possibly be persuaded to invite their friends to join.
  • How high is customer retention by cohort? (Ie. % of installed initial base still transacting)
  • What will attract your initial base of customers vs. future cohorts? Early adopters typically accept lower value propositions than late adopters, but they also may have different needs and desires. How will this affect your ability to keep existing customers as you grow?
  • How is the supply chain structured and is disintermediation possible?
  • Are they multiple intermediaries driving market prices up and cutting profits for suppliers at the beginning of the chain, if so how can this be avoided or disrupted. For example fishermen selling their fish cheaply to wholesalers who then distribute it, and sell it for higher prices to restaurants, rather than fishermen selling it for a better price for them at a cheaper price for the restaurants because no wholesalers would be involved who needs to also profit.
  • How compatible with existing behaviours is the product?
  • Product adoption is considerably slower if adoption occurs at all when new products are not compatible with existing behaviours. This does not mean they must be identical, just not a huge stretch for consumers to make the change. For example Robo automatic vacuum cleaners. You still have to get the vacuum cleaner out to vacuum the floors, but instead of having to manually do it, you can just press a button and the robot will do it for you.
  • How complex is the product for consumers to understand how it works?
  • The harder it is for someone to understand, the less likely they are to use it. How easily can the product be explained to a user? Genius comes from making complex ideas simple, and easy to understand by the masses.
  • Are consumers able to test the product prior to purchase?
  • Similar to why many SaaS companies offer free trials, it is very important for people to validate for themselves whether or not something is worth buying. If they cannot do this, it represents a risk for them, and they are less likely to want to adopt your product.
  • Can consumers see others using the product?
  • Similar to being able to test it themselves, people want to see others using the product for social validation and be able to watch someone using it so that they can learn themselves, making it easier to understand and thus purchase.
  • Does the business only work in the best case scenario(s)?
  • Things never go exactly as planned in startups, and with the risk so high, betting on the best case scenario is like driving a hummer through a minefield and hoping you don't get hit. The business should ideally work even in the worst case scenario if possible, or at the very least a reasonably likely one.

These should give you a good idea of how scalable and potentially profitable your business model is. If you would like help answering these questions and building your startup, whether from conception, to venture backed, I am available for freelance consulting work. See the button below.

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