"Start-ups that succeed are those that manage to find a plan that works before running out of resources."--Ash Maurya
A key part of our business at Avondale is to pursue new ventures or adjacent businesses where we can leverage our strengths and experience to create value. We sometimes find it challenging, though, to move forward with fundamentally new business models. We tend to have drawn-out debates about how to approach the market, which customers to serve, and whether the new model has merit.
Much of this debate can occur in a vacuum, with only limited discussions with potential customers. We tend to get risk-averse when thinking about the investment required to execute a new model and all the uncertainties around it. As a result, we can get stuck in analysis paralysis: a lot of talking without much forward progress.
Enter the Lean Startup methodology, championed by Eric Ries. Ries's book and writings contain a wealth of ideas for incrementally building a start-up. Ash Maurya has written a related book entitled Running Lean: Iterate from Plan A to a Plan That Works that gives practical advice and examples on building and testing a business model.
Maurya emphasizes the need to develop a testable business model quickly. A start-up simply cannot afford to invest months to develop the traditional 10-to-60-page business plan. Maurya instead has developed a lean business model canvas (free to join) that allows you to put the key elements of your business model on a single sheet of paper in 20 minutes. The key elements are:
Sounds extensive, right? You might be thinking: It's not possible to get all that down on paper in 20 minutes.
It is indeed possible; we experimented with the lean canvas and were able to document a start-up business model in 20 minutes. Over the course of a few articles we will talk through the Running Lean methodology using that business model as an example.
We have identified a market opportunity in the traditional Private Equity (PE) model, where the PE fund has misaligned incentives. Fund managers have two fundamentally different ways of looking at risk/reward trade-offs, compared with their investors:
As a result, PE funds may be underperforming the S&P500 by up to three percentage points despite taking more risk. Similarly, the Kauffman Foundation reports that 62% of their venture capital fund investments failed to exceed returns from public markets.
Following the Running Lean methodology, we summarized this problem (in roughly five minutes) as:
Based on the problem description above, is this a compelling problem that is worth solving? Please let us know your thoughts at firstname.lastname@example.org. We will discuss our proposed solution and the other parts of the proposed business model in future articles.