Monday, November 11, 2013

Profit Driver #2: ASSETS

If I collected all the diamonds in the world, I'd have no 'income' but I'd have a lot of 'assets'. Would my company be worth nothing because I have no income? A lot of Net companies are collecting assets. They have to be measured with a new set of metrics.
~Vinod Khosla

Such is the case with a start-up. More specifically, a lean start-up collects a lot of diamonds: these are the nuggets of insights, knowledge and wisdom that are the main outcome of the experiments conducted on their business model.

Everything, in a lean start-up, is targeted at maximizing learning:
- formulation of falsifiable hypotheses
- splitting into problem team / solution team (same thing for the interviews)

The lean stack promoted by Ash Maurya is a very useful tool by which the knowledge gathering process is managed.

Knowledge may be the most important asset in this stage, but there are others too:
- the recruiting process is not merely important, but fundamentally vital - it can literally make or break the start-up;
- the ability to pivot the business model, to continuously weed out potential waste.

One more thing
You may have noticed that I have not included in here the "classic" assets: IT infrastructure, patents, products already designed / built etc.

That is because I believe that, at a start-up stage, such "hard" assets are actually liabilities - they hinder innovation, they are a trap of past thinking and habits, they entice you to reuse sunk (and maybe failed) efforts, they force your solution into an already existing mold.

This is the innovator's dilemma applied to start-ups: you may become captive not to your existing market (because you don't have one yet), but to your existing asset base.

You have to keep pivoting your asset base and you best do this when your asset base is intangible. Your "hard" asset base should, for the time being, stay on your P&L (as a rental cost), not on your Balance Sheet.

Next week, on Profit Driver #3: Functions!