Review: Disciplined Entrepreneurship by Bill Aulet

I wish I had found this book years ago. It contains a clear 24-step process for creating a new business or product. There is no fluff in this book; no business book jargon, no attempt to upsell you to some consulting service, no BS at all. Just the 24 steps, with a clear description of each, an explanation that makes it obvious why the step is valuable, and several examples from real world companies of what that step might look like. Everything in the book is immediately actionable; you can even buy a workbook to help you work through the 24 steps.

The process defined in this book is considerably better than the ad-hoc, partial, poorly thought out process I had always used before. I finally understand many of the issues I’ve hit in the past and realize how I could’ve avoided many of them if I had followed the much more systematic process in this book. This book now sits on my desk as a reference, and I’ll be following it for every new product venture going forward. I highly recommend it to every entrepreneur, product manager, and company leaders in general.

The book defines 24 steps, which can be loosely grouped into 6 phases. I’ll go over the 6 phases and some of the key insights I got from each one.

1. Who is your customer?

• This consists of segmenting the market, picking a beachhead market, building an end-user profile, calculating the TAM for the beachhead, profiling the persona for the beachhead, and identifying the next 10 customers.

• Insight: pick a narrow target market when starting out. Even if your goal is to some day build a multi-billion dollar business, you typically do not want to start by taking on a multi-billion dollar market right away, as that will make almost everything harder: more competition, more complicated product to build, more customers to cater to, harder sales & marketing, less focus, and so on. Instead, start with a much more narrow beachhead market, and specifically pick the beachhead market as one you can dominate in a relatively short time period. The idea is to segment the larger market into a bunch of smaller ones and to pick one of those smaller markets where you can successfully deliver a product, the sales cycle is reasonable, competition is not too tough, and so on. If you can succeed in one small target market (typically, $20-100M/year), you can add follow-on markets later, and eventually grow to be big; but if you take on a big market right up front (e.g., $1B), you are far more likely to fail.

• Insight: systematically research your target market and end-user. I’ve always done this in a sloppy, half-assed way, and as a result, missed many key questions. This book defines a clear series of questions you want to answer about your target market and your end user. Answering these will require research and lots of time spent with customers; but if you skip it, you’ll spend far more time building the wrong product for the wrong market. So spend the time up front to answer questions like, do the end users in your target market have funding? Are those users accessible to your sales force? Do they have a compelling reason to buy? Could you build a product that fully solves their problem? Who are the players (competition, partners)? What’s the size of the market?

2. What can you do for your customer?

• This consists of figuring out the full life cycle for your use case, defining a high level product specification, quantifying your value proposition, defining your core, and charting your competitive position.

• Insight: be specific and systematic in defining your differentiator. You should be able to clearly describe it in words, quantify it (e.g., do it 80% faster), and visualize it. Doing that up front leads to a better product and gives you materials you can show directly to customers as part of sales and marketing.

• Insight: think through the entire lifecycle around your product and not just the part where the end-user is actively using the product. This includes asking questions like how will users discover the need for your product? How will they find your product? How will the analyze it? Acquire it? Install it? Use it? Determine they are getting value from it? Pay for it? Get support? Buy more? And so on.

• Insight: create a product brochure up front, long before you build the product itself. This will force you to see the product through your customer’s eyes: what is the product? What are the key features and benefits? Why should I buy it? This brochure can be a great way to ensure you’re building the right thing (if it’s not in the brochure, you may not need it for the first release) and it may be useful for getting your team on the same page, getting feedback from customers, raising money from investors, and so on.

3. How does your customer acquire your product?

• This consists of determining the customer’s decision making unit, mapping the process of acquiring a paying customer, and mapping the sales process.

• Insight: each customer consists of an end user and a decision making unit. The end user is the individual who actually uses your product. The decision making unit includes the champion (someone who wants to purchase the product), the primary economic buyer (someone with authority to spend money), and potentially influencers, vetoers, purchasing departments, etc (people who have sway over the primary economic buyer). Sometimes, the end user plays all these roles, but often, that’s not the case (especially with B2B). Merely building a product that makes an end user happy isn’t enough; you must also be sure that your sales process works for the decision making unit too.

4. How do you make money off your product?

• This consists of designing your business model, setting up a pricing framework, and calculating LTV and COCA.

• Insight: a business model is not pricing. It’s the higher level framework that defines how your business extracts money from customers. The book has a list of common business models, such as: one-time up front charge plus maintenance; cost plus; hourly rate; subscription model; licensing; consumables; advertising; transaction fees; usage based; etc.

• Insight: most companies should aim to have a business model based on value, not costs. That is, instead of basing your pricing on costs plus markup, you should aim to extract a portion of the value you create for your customers. In the tech startup world in particular, the marginal cost of software is typically zero, so a business model based on cost won’t work. On the other hand, software can produce a huge amount of value, so capturing some of that value can give you a very scalable business model, and one that aligns incentives well with your customers (the more value you give them, the more successful your business). The percentage of value that you capture varies, but 20% is a typical target.

• Insight: be systematic about figuring out your LTV, COCA, and other key metrics up front. Even if you have an amazing product and an effective way to sell it, if the unit economics don’t work, you won’t succeed as a business. The book includes formulas and resources to help do these calculations.

5. How do you design and build your product?

• This consists of identifying key assumptions, testing those assumptions, defining an MVBP, and showing that “the dogs will eat the food.”

• Insight: don’t skip the previous 4 phases! In many of my product ventures, I went straight to the “design and build the product” phase, and it cost me. Yes, it’s a lot of hard work to identify the customer, their needs, how to acquire them, and how to make money from them, but the odds of launching a successful new product or business without doing those steps is quite low.

• Insight: build Minimal Viable Business Product (MVBP) to test your assumptions. This is slightly different than an MVP, in that it requires three core elements: the customer gets value from the product; the customer pays for the product; the product is sufficient to start a feedback loop where the customer can give you feedback to iteratively improve the product.

6. How do you scale your business?

• This consists of calculating the TAM of follow-on markets and developing a product plan.

Rating: 5 stars