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Ideas Made to Matter
Entrepreneurship
By
Bill Aulet
In the updated version of “Disciplined Entrepreneurship,” MIT Sloan’s Bill Aulet delves into the importance of knowing your customer, scaling your business, and more.
A decade ago, entrepreneur and MIT Sloan educator proposed a disruptive concept in the business world: disciplined entrepreneurship. In his 2013 book of the same name, Aulet assured readers that not only could entrepreneurship be taught, but his 24-step framework could help them learn it.
“Some people tell me that entrepreneurship should not be disciplined, but chaotic and unpredictable — and it is,” Aulet wrote. “But it is just in such situations where a framework to attack the problem in a systematic manner will be the most valuable.”
Now Aulet is offering “Disciplined Entrepreneurship: 24 Steps to a Successful Startup, Expanded & Updated.” In the following excerpt, Aulet, managing director of the Martin Trust Center for MIT Entrepreneurship, outlines six themes that offer a proven general outline of how to create a sustainable innovation-based business.
This excerpt has been edited and condensed for clarity and length.
It is crucial to start the process with the customer and work everything back from there. Brainstorm and identify how your idea/technology can serve a variety of potential end users.
As a startup, you have limited resources, and focus is essential. Select one market segment where you feel you have the highest odds of success while also giving you legitimacy and strategic assets to grow further.
Use primary market research techniques to build out a robust demographic and psychographic description of your end user. This keeps the focus on the end user, deepens your understanding of the primary customer, and calculates the total addressable market size for your beachhead market.
To make sure your beachhead market is not too big or too small, estimate the revenue per year you will get in your beachhead market if you achieve 100% market share.
Profile the persona for the beachhead market by identifying one actual real end user in your beachhead market who best represents your end user profile. This creates great focus in your organization and serves as a touchstone for all decisions going forward.
Create a list of the next 10 customers after the persona who closely fit the end user profile. This validates the persona and all the assumptions you have made so far.
Describe the full longitudinal experience of the persona and what opportunity there is for improvement. This will provide invaluable information for future steps to create specificity with regard to solutions, value, and accessing the customer.
Create a visual description of the product as well as a simple draft brochure, landing page, or digital representation of the proposed product. You need to make sure your team and the customer all have a common agreement on what the product is.
Summarize in as concrete a way as possible the value your product will create for the target customer. Customers buy based on value; it needs to be clear that you can show it.
Determine the single thing that you will do better than anyone else that will be very difficult for others to copy. Having a clear definition of your core will allow you to focus your limited resources to build and reinforce it.
Represent visually your position relative to the other alternatives in the persona’s top two priorities. Customers don’t care about your “core,” but they do care about benefits relating to their priorities.
Determine all the people who are involved in making the decision to acquire your product — including influencers. This starts the process to determine the cost of customer acquisition.
Detail how the decision-making unit decides to buy your product. This will be critical input to determine the length of the sales cycle and identify critical bottlenecks in the process.
Visually map the short-, medium-, and long-term way you will create and fulfill demand for your product. This will be critical input to calculating the cost of customer acquisition over time.
Review the different ways to get paid for your product and choose the best one aligned with all key stakeholders’ interests.
Determine a framework to test pricing for your new product and decide on what the initial price will be. Small changes in pricing can have a huge impact on your profitability.
Estimate the net present value of the total profits you will get from a new customer over the time period they will be your customer. To complete the unit economics, you now need to estimate and understand the drivers of the lifetime value of an acquired customer; it should get to at least three times the cost of customer acquisition.
Estimate the total marketing and sales expense in a given period to get new customers and divide this by the number of new customers. The unit economics are a simple but effective proxy for how sustainable and attractive your business will be as it scales.
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Identify key assumptions to be tested before you begin to make heavy investments in product development. It will be faster and much less costly now to test the assumptions and allow you to preserve valuable resources and adjust as needed.
Test each of the individual assumptions you have identified. This scientific approach will allow you to understand which assumptions are valid and which ones are not and then adjust when the cost of doing so is much lower and can be done much faster.
Define the minimal product you can use to start the iterative customer feedback loop —where the customer gets value from the product and pays for it. You must reduce the variables in the equation to get the customer feedback loop started with the highest possibility of success with simultaneously the most efficient use of your scarce resources.
Offer your minimum viable business product to your target customer and obtain quantitative metrics regarding the adoption rate of the product, the value the target customer is getting from the product, and proof that someone is paying for the product. Numbers don’t lie. Show concrete evidence, and don’t rely simply on anecdotal evidence.
Calculate the annual revenues from the top follow-on markets after you are successful in your beachhead market. It shows the potential that can come from winning your beachhead and motivates you to do so quickly and effectively.
Develop a longer-term plan to add functionality so you can address additional markets over time. It is important to think ahead and have a plan so your team is ready to keep moving forward after delivering the minimum viable business product.
Excerpted from “Disciplined Entrepreneurship: 24 Steps to a Successful Startup, Expanded & Updated,” by Bill Aulet. © 2024 Bill Aulet. Reprinted by permission of Wiley. All rights reserved.
The mission of the MIT Sloan School of Management is to develop principled, innovative leaders who improve the world and to generate ideas that advance management practice.
