Startup Readiness Level
It is very difficult to judge how far a startup has progressed. What is needed is an evidence based, measurable progression towards a viable business, with clear next steps and milestones. The Startup Readiness Level (inspired by Steve Blank’s Investment Readiness Level) tries to give you that map.
Use this tool when:
- you want to make sense of your startup journey
Overview
| Time | ± 30 minutes | |
| Difficulty | 3 / 5 | |
| People | 3 - 5 | |
| Author | erik van der pluijm | |
| Website | https://wrkshp.tools | |
| License | CC BY SA 4.0 |
What is it and when should I use it?
When helping startups, it is very difficult to judge how far a startup has progressed, especially when you base your judgement only on a shiny pitch deck and the (imaginary) numbers on their 5-year business plan.
It’s not clear there’s a correlation between giving a great PowerPoint presentation and a two minute demo and building a successful business model.
- Steve Blank
What is needed instead is an evidence based, measurable progression towards a viable business, with clear next steps and milestones. To do that, you need to know where you’re coming from, where you’re going, and where you are now on your journey.
After all, startups don’t all follow the same route. And running a startup is far from predictable. That’s why it’s so hard. Yet still, startups do need to reach similar milestones, and their journeys do have similar stages. Mapping those stages is what the Startup Readiness Level is all about.
The Startup Readiness Level was inspired by Steve Blank’s Investment Readiness Level. (To read the blogpost by Steve Blank that describes the Investment Readiness Level, follow this link.)
The original Investment Readiness Level is geared towards understanding when a startup is ready to invest in. And sure, investment can be super important for startups, but it’s not the only thing that startups work towards. Investment Readiness is simply a part of a bigger story.
To look at the journey a startup takes from the startup’s perspective, you have to include the rest of that story.
With the Startup Readiness Level as a guide, it is possible to look at evidence-based entrepreneurship. It is possible to track the progress of a startup through different stages towards success.
The Startup Readiness Level
The Startup Readiness Level divides the typical startup journey in ten levels. Every startup starts at level zero, and works its way towards level 10.
Every level is a stage that needs to be cleared before going to the next one. Sometimes, you can get stuck on a level for a while, before figuring out how to clear it, grinding your way forward like in a difficult video game. But keep working at it and trying new things until you get past the hurdle. Don’t try to tackle that level 61 elite boss when you’re just starting out in the game.
If you’re a startup, you’re playing an unfair game. You need to be smarter than the rest. You not only need to be right, you need to prove you’re right. The only way to do that is with data. No more discussions about whose opinion is better, when those opinions are not backed up with data. Without data, it’s all talk.
That’s why every level has clear metrics. Using these metrics it becomes crystal clear in which level you are and what you can do to progress. Each stage also has different typical tools and activities associated with it.
Of course, every startup will have slightly different metrics to deal with. What is a substantial number of customers to one business is peanuts to another. It depends on the goals you set for yourself, and the business model you’ll come up with. So for every stage, you’ll need to use your brain to come up with the exact values for the metric you need to achieve.
It’s time to play Moneyball.
- Steve Blank
Tool Overview
Define your Idea Define your idea and focus on what you want to achieve
Understand the Problem Focus on understanding the problem from your customer's perspective
Explore potential solutions Come up with different ways to solve the problem
Validate Problem / Solution Find out what solution your customers prefer over all alternatives
Build and validate Lo-Fi MVP Create your first rough MVP and gauge customer reaction
Validate Product / Market Tune your product until customers can't do without it
Validate your revenue model Figure out what the best way is to get revenue
Validate value delivery Tune the way you deliver value at scale
Validate growth Validate if you can grow beyond your initial target customers
Steps
1 Define your Idea
- Do you know why you want to start your journey?
- Do you know what you want to achieve, and with whom?
- What are your design criteria?
- What is your vision?
- Find at least ten people that your idea and vision resonate with
‘Resonate’ here does not necessarily mean that they agree with you – just that they think it is an important and interesting idea. At this stage you have all the freedom in the world to change your ideas – if you can’t excite or interest people in this stage, perhaps you’re barking up the wrong tree.
It’s important to start out with a vision. If you don’t, you’ll run the risk of running out of steam, doing something that you don’t care about. Starting a business is hard, so you’ll need something that drives you even when the going gets tough.
Typical Duration: A few days to weeks
2 Understand the Problem
Key Questions
- Do you really understand what problem you want to solve?
- Do you really know the people that experience the problem every day?
- Do you know what this problem costs them? What do they currently do to solve it?
- How many people have this problem?
Key Metrics
- Can you find (and connect with) at least ten people that experience this problem on a regular basis and that care about the problem being solved?
- Can you do the ‘back of the napkin’ calculation to show that there will be enough customers ready to pay to make this a problem worth solving?
Here, it’s time to get curious. It’s not about the solution, it’s about the problem. Find a problem people care about. Talk to as many people as you can that you think might be experiencing the problem. Try to learn how the problem manifests itself in their lives. Is it a nice-to-have or a need-to-have? How many people have this problem? What does it cost them today? Learning not only who the people are that experience the problem but also how to reach them is vital for the success of your business.
Key Tools
Typical Duration: A few weeks to a month
3 Explore Potential Solutions
Key Questions
- Did you explore multiple solutions to see what aspects of a solution are important to your customers?
- Did you run at least three experiments with three different potential solutions?
Key Metrics
- Did you manage to positively validate at least one possible solution?
Now that you have found a problem worth solving it’s time to look at solutions. It’s important to start from the problem and the people experiencing it when coming up with potential solutions, and it’s important to stay ‘out of the box’ for a bit. Sure, you may have a gut feeling that a certain solution is the way to go, but why not take a little bit of time to prove that it’s really the best solution you can come up with? And, maybe even more importantly, do your customers agree?
Key Tools
Typical Duration: A few weeks to a month
4 Validate Problem / Solution
Key Questions
- Can you find a substantial number of customers that prefer your solution over any other solution to their problem?
Key Metrics
- Can you find at least ten people that were prepared to give a commitment to show they want your solution? And were they each willing to introduce you to people in their trusted network that also should know about this?
This level is about making an awesome solution. Not just a meh, me-too kind of thing, but something people feel they must have. You will only know this if they want to make a commitment, for instance by actually paying for it. If people want to introduce your solution to people in their trusted network, it means you’re really helping them. It can be tempting to squeeze past this stage, taking leading indicators that there are some people out there that stand not entirely negative towards your solution as ‘evidence’ you have achieved product-solution-fit. Don’t do it. At this stage, you’re still small and agile. Better to get it right before moving forward.
Key Tools
Typical Duration: A few months
5 Build and Validate Lo-Fi MVP
Key Questions
- Can you find early traction, where early adopter customers are ready to pay for your solution?
Key Metrics
- Can you reach 100 actual customers to sell your product to? Do they love it? Were you able to serve them and keep them happy and engaged?
This is where it starts to become serious. The numbers of customers start to grow. Where before you may not have really had a product yet, now you’ll need to start building, delivering, and learning about serving customers and retaining them.
Key Tools
Typical Duration: A few months
5 Validate Product / Market Fit
Key Questions
- Can you scale up your customer base, and find customers in sufficient quantity to make your business work?
Key Metrics
- >70% of your customer base would really hate not being able to use your product
Key Tools
This is where the pedal meets the metal. The make-or-break moment. You’ll need to show that you have built a product that a sizable chunk of your target customers can’t do without.
Typical Duration: A few months to a year
7 Validate Revenue Model
Key Questions
- Can you make money?
- Do customers like your revenue model?
Key Metrics
- You have a CLTV of 2-5 times CAC.
- You are growing towards MRR of > 10K per month
Here you’ll start to really experiment with your revenue model. You’ll need to understand how you generate (recurring) revenue and make a profit delivering your product – while at the same time growing your customer base and developing your product.
Key Tools
- Pirate Metrics Canvas
- Experiment Canvas
- Lean Canvas
- Business Model Canvas
Typical Duration: A few months to a year
8 Validate Value Delivery
Key Questions
- Can you deliver at scale?
Key Metrics
- You are able to keep your growth rate up
- You are able to keep your customers happy
- You are able to improve quality and reduce cost on the value delivery side?
- You have a CLTV of 5-8 times CAC.
You have a sizable customer base now and you’re able to run a profit. But can you scale it up? Can you prove you can deliver value for your customers at scale? For most businesses, getting to this stage is already proving it’s a solid business model. But of course, you can still try to level up. At this stage, the tools in the Startup Readiness Level start to become less important. They’re still useful as mental models, but you should really have built your own business intelligence and analytics by this stage that are tuned to the intricacies of your business.
Key Tools
- Pirate Metrics Canvas
- Experiment Canvas
- Lean Canvas
- Business Model Canvas
Typical Duration: Over a year
9 Validate Growth
Key Questions
- Can you acquire more customers in more markets?
Key Metrics
- Are you able to reach other markets successfully?
Can you grow your business beyond your initial target market? This is where you go beyond ‘normal’ businesses into ‘unicorn territory’. At this stage, the tools in the Startup Readiness Level start to become less important. They’re still useful as mental models, but you should really have built your own business intelligence and analytics by this stage that are tuned to the intricacies of your business.
Key Tools
- Pirate Metrics Canvas
- Experiment Canvas
- Lean Canvas
- Business Model Canvas
Typical Duration: Over a year
10 Do the Unicorn!
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