The lean startup and the grid founder

Lean startup cover

I recently read Eric Ries’ book The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses and as I was reading it, I kept thinking, “This would be great advice for grid owners!”

Ries was the co-founder and CTO of IMVU, which I’ve never used, but which apparently started out as a social chat app and evolved into a more-popular but less hyped version of Second Life.

I’m going to summarize the book right now, then go into more depth in follow-up posts, with some ideas about how to apply the lean principles to starting a grid.

Test everything

There’s an old saying in journalism: “If your mother tells you she loves you, check it out.”

The same applies to starting a new grid. People might tell you that they love your idea of a vampire-themed grid set in virtual Oklahoma where everyone has to grow corn to earn money. And it might seem obvious to you that combining two favorite things — vampires and farming games — is a guaranteed success. But before you spend your life savings on it, your health, and your sanity, do some testing.

For example, you might start with a vampire-and-corn-themed region on someone else’s grid and see if you can attract users.

The faster you can find out the truth, the faster you can move on to something with a higher chance of success.

The runway

The “runway” concept for startups dates back to the old dot-com days, and it means the number of days you have before all your money runs out.

In the lean philosophy, the runway is the number of times you have left to test whether an idea is viable, and to adapt if its not. By speeding up the tests and making them more efficient you can actually extend your runway without getting more money.

So, for example, if you have just enough money to launch a basic vampire-and-corn grid — the content, the hosting, the initial marketing push — and you build the grid and run your marketing and sit back and wait for customers, that’s one learning cycle.

If the result of that learning cycle is that nobody wants a vampire-and-corn grid, then you’re out of business right then and there.

By testing with a small region first, you might find out that people don’t want a vampire-and-corn grid, but are crazy for vampires-and-wheat, not only have you saved your company and found a profitable niche, but you might even be getting some revenues from your test region.

Which brings me to the next concept.

The minimum viable product

Entrepreneurs often feel that they have to have a serious product in hand before they can go to the market. A fully-stocked and well-designed welcome center, plenty of customized avatars, buildings, animations, and themed games, anchor merchants, a classy website, a functioning currency.

If any pieces are missing at launch, then customers might not give the grid a chance.

Lean principles turn this kind of thinking on its head.

Instead of putting in effort and time and money into creating a polished, finished product, entrepreneurs should discover what the minimum viable product is, and focus on getting that out, instead.

For the vampire grid, that might be a region on someone else’s grid.

Or it might be a game where users download and use game HUDs and play on multiple grids, or chase each across across grids via hypergrid teleport.
Or it might be a series of short stories posted on a blog, narrating the history of the imaginary world the game will be based on.Or it might be a Kickstarter video.

By showing interest in any of these products, your potential customers are also showing that they might be interested in your grid. And you’ll be getting money coming in while you’re building it.

The lean bootstrap

Usually, when people talk about entrepreneurship and startups and runways there’s startup capital involved. Money from friends and family, or from venture capitalists, or from the sale of your previous company.

A bootstrapped startup doesn’t have any money to start with. Instead, you’re relying on the founder’s time, and revenues coming in from initial customers.

Consulting companies and enterprise software companies are often bootstrapped. You go out to your client, and they pay you for building your software product, or providing consulting services for them. Then you go after a second client, using the revenues from your first client to hire an assistant, or to improve your software. With each new client, your company gets a little bigger, or your product gets a little bit better.

Lean principles, with their focus on getting out to the market as fast as possible, adapting quickly, and bringing in revenues early, are a perfect fit for bootstraps.

Say you’re a guy creating a new grid, by yourself or with your partner. You have limited funds — namely, no funds. But you also have limited time. You think you can put in twenty hours a week of work until the grid is ready to go, so you might think your “runway” is infinitely long, but there’s a practical limit to that.

You will get bored. Or tired. Or your partner will get bored. Or your spouses will put their feet down. Or you’ll get pregnant, or lose your day job, or your parents will kick you out of their basement.

If your first grid project fails, are you going to be able to spend the same amount of time and energy on your second? Will your partner? How about your third or your fourth?

By using lean principles, you can dramatically shorten the time to that first failure — or first success — and get more use out of the runway time that you have.

The result is that you’ll be more likely to end up with a profitable grid, and get there much faster than you would otherwise.

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Maria Korolov

Maria Korolov is editor and publisher of Hypergrid Business. She has been a journalist for more than twenty years and has worked for the Chicago Tribune, Reuters, and Computerworld and has reported from over a dozen countries, including Russia and China. Follow me on Twitter @MariaKorolov.

10 Responses

  1.' Minethere says:

    I recall something about having capital to run your business for 6 months with no income in hand before starting…but, my memory is a bit flakey on that…maybe it was 3 months.

    Anyways, a vamp/corn grid sounds fascinating!!!

    • I think three months/six months is for regular living expenses. Which is a good idea to have in any case.

      So if you’re a solo-preneur, it will let you get through the lean periods.

      This is especially true for people in my line of work, freelance writers. Freelance gigs pay at different rates, so it’s entirely possible for nobody to pay you for six months — and then everyone pays you all at once. (This has happened to me. Not fun!)

      So if you’re living month-to-month, used to having a certain average amount come in each month, you’ll be in trouble. It is a good idea to start building up reserves as soon as you can. Which is hard, because the other downside of freelance writing is that it doesn’t pay much!

    •' Yoshiko Fazuku says:

      Actuality what is normally advised by accountants and lawyers is expec and plan for 5 years with out a profit and if it hasn’t made a profit by then shut down cause the IRS will shut you down for you hehe

      • It really depends on the industry. In some service sectors, it’s common to be profitable on day one.

        Say, for example, you start a babysitting business. You’re going to have positive cashflow with your first kid. Same with house cleaning, many kinds of consulting, many kinds of freelance services like writing and design and copyediting, legal and accounting services, and more.

        There are quite a few industry sectors that require no up-front capital investment, and the number of such opportunities is only increasing as more and more services are available to startups a-la-carte, where you only pay for what you use.

        Cloud computing, for example, eliminates the need to buy a lot of servers up front. Open source software reduces the need for expensive software licenses. Freelance workers allow you to run a virtual company, without having to build an office building to house everybody.

        With OpenSim grids, you can hire someone to do all your hosting and tech support for you, and just focus on bringing in paying customers. As long as you expand slowly, not getting ahead of your customer base, you can be cash-flow-positive right off the bat. Now, you might not be able to get enough out of the company to pay yourself a full-time salary, and it might take a year or two to grow to the level where you can, but if you’re running your business as a sole proprietorship, you’ll be “profitable” immediately, in the sense that you’re getting money out of the company.

        •' Minethere says:

          yea, I recalled that I was thinking of the restaurant business, where ppl come and go quickly sometimes…I used to own a business that dealt with restauranteurs.

          if they were not making profits by 3 -6 months, depending on how well they were capitalized from the beginning, they would often close their doors with no notice to vendors…it could be very annoying when they also did not feel it necessary to pay you…lol

          •' Samantha Atkins says:

            One place I agree is that putting in dependable hours outside a fulltime day job is very difficult. I think I have made the most significant progress on my bootstrap in periods between day jobs.

  2.' Samantha Atkins says:

    Yep. I am in the process of bootstrapping a company myself and am reading this book avidly since I saw it mentioned here. Too much polishing has had me working on this “hobby” much too long without putting something in front of potential users.

    Great point on grid business models as well. If it doesn’t work on a one region or even a part of a region then it ain’t likely to work when blown up to a grid.

    • I was involved in several entrepreneur groups in Shanghai when I was based in China — it seems everyone and his brother was moving there to start a company! — and had one friend who spent years working on his business plan.

      He was in a MasterMind group with me, and each time we met, he had made his business plan more ambitious.

      Every time, our advice was: Find your first customer. Do what your customer wants you to do.

      His was the kind of business that you could grow, one customer at a time, with no start-up cash.

      Instead, he kept redesigning his business plan so it would need more and more investment capital.

      I’ve sat in on VC pitch meetings. VCs know that all numbers and projections in a business plan are imaginary. What they look at is who the founding team is, what their track record is like, do they have the industry contracts to do the sales, to make the products, to run a startup on their own?

      My friend didn’t have any of those things, just ideas. And while I’ve heard of people getting funded on just an idea, it is super, super rare.

  3.' Cam Chevalier says:

    argh, you stole my vampire/corn grid idea, and here’s me thinking no-one would ever guess. A good write up Maria, I would just like to emphasize one point you made, most people build what “they” like to see or do, but the reality is nobody cares way “You” want, the trick is to get into the customers head and find out what the customer wants, this is the essence of business. A world leading millionaire was once asked the secret to getting rich, his answer was “find somebody with money, find out what he wants, and sell it to him.” So it is all about customer research.