Launching a business is the dream of many of this year’s college graduates. But the road to success can be fraught with frustrating roadblocks. Some studies show that as many as three out of every four business startups flop.
The failure rate has many causes, but entrepreneurs often cite three obstacles to startup survival: a weak business plan, untested market demand, and inadequate funding.
As you’d expect, smart entrepreneurs do everything they can to improve their odds of success. Many of them are turning to an operational approach that’s become known as Lean Startup.
The SmartDraw program, touted as the world’s first visual processor, automates the creation of dozens of kinds of charts and diagrams. The company has more than 90,000 unique visitors to its website each day and more than 3,000,000 installations of its trial software every year. SmartDraw is used by more than half of the Fortune 500 and by more than 250,000 public and private enterprises worldwide.
To learn more about the practical application of Lean Startup, I interviewed SmartDraw founder and CEO Paul Stannard.
Rodger Dean Duncan: In today’s marketplace, what are the top three pieces of advice you’d give an entrepreneur who wants to start a new business?
Paul Stannard: First, get a minimum viable product in front of a customer as soon as possible. Listen to their feedback and respond to it. Let your customers help you design your product.
Second, do only the things that are necessary to get your business off the ground. Don’t waste time on things you can worry about later.
Third, if you raise capital spend it like it’s your own money. It runs out fast and it’s expensive. When you cash that big check you may feel rich but you aren’t.
Duncan: You’re a strong advocate of a strategy known as the Lean Startup. Exactly what is that strategy, and why are you such a big fan?
Stannard: My first startup ultimately failed. The Lean Startup idea encapsulates many of the lessons I learned from this. The key principle is to develop a baseline product that can adequately demonstrate the benefit to a customer (the Minimum Viable Product) and then use it to validate customer acceptance. Then improve it based on their feedback. Spend the minimum resources to get to this point: You don’t need a marketing budget until you want to scale initial market acceptance.
I founded SmartDraw using these ideas in 1994. I needed no capital other than my time and a web site. The first version of SmartDraw was a very simple drawing program. I used the Internet to sell directly to end-users and was able to get very close to them. I quickly incorporated their requests and solutions to their problems into the development of the product and the result is the sophisticated app we have today. And we did this all without a losing quarter.
Duncan: You established SmartDraw with no outside sales force and no shelf space in big box stores. How did you get sales traction and how have you managed to sustain it?
The Internet! I was an early user and it was clear to me in 1994 that the web was going to replace retail as the primary distribution channel for software, so I designed SmartDraw to be delivered this way from the beginning and decided to skip retail entirely. We had one of the first web sites designed to sell and deliver software and learned the science of digital marketing by trial and error. We have maintained a strong position using the same Lean principles of respond to feedback, make changes, measure and then keep what works.
Duncan: Back in 1994—which in technology years seems like eons ago—you jumped into direct Internet marketing. How have you made it work, and how has that approach evolved over the years?
Stannard: As a scientist, I love Internet marketing! You can actually measure success or failure. I took a classical scientific approach: I proposed a hypothesis, devised an experiment to test it and acted on the results. We follow the same methodology today. We test and measure everything: New techniques, changes to ad copy, even how our trial software opens the first time someone uses it. We were one of the first companies to discover the digital marketing techniques that are commonplace today.
Duncan: In the day-to-day running of your business, what role does Lean play in your operating practices?
Stannard: I believe that we operated as a lean company before Lean was recognized as a formal methodology. We apply the simple rules of test, measure, and iterate. At SmartDraw, we focus on constant improvement, with decisions based upon data and facts – one of the key tenets of Lean methodology.
Our processes are very lean. Everything is automated and we have very low inventory. It’s just the way we think. We run the entire administrative and operational side of the business with three people. We ship media (if you want it) within one business day. We answer customer questions usually immediately or within an hour.
Duncan: When will you put a Mac version of SmartDraw on the market?
Stannard: Windows has been the dominant platform for most of the last 20 years, but clearly things are changing. Many new platforms are becoming significant, not just the Mac, but mobile devices and web browsers. Customers want to access their documents wherever they are on whatever platform they are using. We will be delivering a version of SmartDraw that meets all of those needs later this year and I think it will set a new standard for what’s possible on multiple platforms.
This interview by Dr. Duncan was originally published by Forbes where he is a regular contributor.
Follow on Twitter @DoctorDuncan