29/05/2017 09:47 - - Co-founder & Managing Director of KisStartup
To help businesses/startups understand exactly where they are in their development stage and whether it's the right time to meet with investors, Steve Blank introduced nine levels of investment readiness that correspond to the stages of startup development.
While not every business follows these steps linearly, as many businesses can be in two different development stages at the same time, these levels provide a useful tool to assess if a business is ready for investment. This tool, along with the Business Model Canvas, serves as a helpful reference to analyze the real development of a business. The investment readiness levels range from low (not ready) to high (ready).
1. Completing the Business Model Canvas at a basic acceptable level
To persuade yourself about your chosen business and start discussions about the potential of your project, you need to outline how you will make money. This is where developing a basic business model is important. At this stage, you should emphasize five key areas of the business model:
-
Target market segments
-
Value proposition for those segments
-
Channels to deliver the value
-
Customer relationships
-
Revenue streams
Even if you think you've reached the 9th stage, reviewing the Business Model Canvas is essential to help identify strengths, weaknesses, and gaps in your current business model. This is the tool investors will use to understand how you will generate revenue from your product, service, and value.
2. Measuring market size and analyzing competitive capabilities
Measuring market size helps show your potential investors where you stand in the market and what market share you currently hold or will hold.
A common mistake startups make when approaching investors is failing to understand the market size for their product or service. At this stage, it’s important to know who else is in the market and how they are performing, even if you don’t have a direct competitor.
3. Validating the problem/market
Demonstrate how many market experiments, interviews, observations, or other methods you’ve used to identify the problem that needs solving in the market. Don't forget to relate the problem to your personal experience.
4. Building a prototype with minimal features (low reliability)
Start by building a prototype with minimal features and low reliability. These products may not be commercially viable yet, but they help potential customers visualize the basic value/solution you offer.
5. Validating product-market fit
To validate product-market fit, you need to prove that customers are willing to buy the product (by accepting the value you provide and paying for it). This validation step is crucial for demonstrating the business model to investors.
6. Validating the right side of the Business Model Canvas
At this point, you’ve validated the customer segments, the value you bring to them, the channels you use to deliver that value, the customer relationships, and most importantly, the basic revenue stream. With a reasonably validated business model, you can confidently move forward with the next steps to refine the value you deliver.
7. Building a prototype with minimal features (high reliability)
Enhancing the value you offer means improving the product. You need to prove to investors, through numbers, the speed at which you’re learning and iterating to perfect the product (for example, the number of tests conducted and how many adjustments have been made based on customer feedback).
8. Validating the left side of the Business Model Canvas
Entering production, distribution, marketing, and sales requires you to validate the best choices for your business. Validating the left side of the Business Model Canvas includes: Key activities, Key resources, Key partners, and Cost structure.
While the first three elements (key activities, resources, and partners) are qualitative, for the cost structure, you must quantify the key costs involved. Based on the information from the other components of your business model, you can build a more precise cost structure.
9. Validating critical metrics
Depending on the nature of the business, you may have critical metrics to demonstrate to investors. Review your metrics on Measurement, Statistics, and Sales Path to choose the relevant metrics for your business. The calculation of cost structure from the previous step will help you detail customer acquisition costs (CAC) and Customer Lifetime Value (CLTV), which are important metrics investors care about, making your final metrics more accurate and convincing.
Source: Tia Sáng
