Top 5 questions to ask any business

I spend most of my time looking at businesses and talking with founders, CEO's and other entrepreneurial executives. I can’t claim any sagelike abilities but here are my top 5 questions I ask of any business I’m working with and an attempt to explain the rationale and wider thought behind them. 

Before that a few caveats. Firstly this is in no way presented as new or unique, in fact, it most closely leverages a speech at SXSW a few years back by Evernote’s Phil Libin (https://twitter.com/plibin) and a number of other emerging platform business norms. It’s just what I’ve found most powerful and useful in focusing discussion, divining what’s really going on and driving behaviours.

Second, this might come across as a bit ‘silicon valley’ but it’s really not. I work across many sectors, admittedly with a technology slant and a particular interest in healthcare, finance, travel and marketplaces but the questions are more applicable than that. 

Third, the stage of the business is irrelevant. If you are early stage you might not yet have all the evidence to answer the questions but you should have ideas to test and research to back up your claims. If you are later-stage the threat and next opportunity lies in these questions in just the same way and you should have numerical evidence to baseline from. 

Fourth it’s deliberately debunking of what was 'normal' form. I’ve seen so many decks that start with the team or the product. There are many good ideas and many good products but these fall into the ‘how’ side of things. What I want to hear about is customer first, who are they, where will you reach them, why will they find value in what you do and then how will the business deliver on that promise to them. 

Here we go then…. 

1. Show me that there is a large enough problem to solve - this is the ADDRESSABLE MARKET question. The answer has to go beyond population size and trend metrics but should articulate the persona of them, the issue they are facing and why it is material to them. Can you quantify the value of the pain for them? What is the geographical and demographic nature of the problem (ie. how scalable is the market)? You also need to show why that problem is not served adequately by other means and won’t be disrupted by an alternate meta trend. E.g. there is no point solving for the needs of property contract lawyers when the AI’s are a coming (just my opinion!!). Importantly there should be a rational train of thought that shows how you get directly from the addressable market justification to a clear articulation of the impact of the problem they face and your vision for the solution to that specific opportunity. While it may not be fully articulated as such at this stage this is the basis for your strategic narrative and a key component of driving both your culture, product and customer engagement strategies.

2. Justify that you can produce a graph that shows over time you can acquire more customers - ie. this is the justification of your GROWTH HYPOTHESIS. As you can imagine this is not an exercise in graph design or modelling but it’s about evidencing that the use of 'which' channels will lead to 'what' results. It could be viral, SEM, SEO, social, bought, events, salesforce, outdoor, instore, radio, TV, sponsorship, influencer…. I don’t care as all channels have a price they will work at (whether the price works for your model or not is another thing). But no matter what the market or what the product, if you organisationally don’t have the capability or enough knowledge to convince that you can acquire customers then you are going to struggle to get out of the blocks. Let’s digress to a personal pet project by way of example, we all like going on holidays, family holidays are big-budget items relative to income but planning them is a faff and remains one of the great unsolved challenges in travel. I’ve had 20+ startups through the door including my own looking at this, all of them had a credible view on the market and a reasonable (almost always identical) solution to the problem but in a market where almost all acquisition channels are heavily exploited and many providers have already established proprietary distribution channels the ability to justify that graph can be statistically tough for a newcomer. On the positive front, the history of online travel is littered with first-mover advantages based on being able to be in the right place at the right time from an acquisition point of view and not necessarily a product point of view. The lesson is to think really hard about how you can align your goals to an emerging opportunity in acquisition that will work for you.

3. Justify that you can produce a graph that shows that over time users or customers use your service(s) more. This is the VALUE HYPOTHESIS. In the example of Evernote Phil Libin showed a graph showing that users tended to drop off after a month or so but those that stayed displayed high usage characteristics. In many web economy companies, this is referred to as frequency as there is a strong correlation between the services that display high user frequency and their valuation e.g. Uber, Amazon Prime, Salesforce.com or perhaps the business users or airlines…. The logic runs that high frequency is a demonstration that you are doing something that is satisfying someone’s needs and therefore adding value, this, in turn, promotes referral, renewal, reduces churn and CAC (cost of acquired customer). More than that it’s an expression of your Brand value and particularly the ‘moat’ (defensibility) of your business. It’s a critical question to be able to answer and harder than you think. It’s a question that is equally relevant to B2B businesses as well as B2C, for instance in our SaaS or membership businesses we look at frequency and renewal/churn rates in our professional services business we look at the number of interactions, the number of purchases per year, the number of opportunities per account and the lifetime of those accounts. 

4. Does the combination of the growth graph and the value graph allow you to justify a graph that shows that revenue grows over time? This is the justification for your BUSINESS MODEL. It does not need to be a hockey stick although that would be nice, but, it’s important (vital as the business equivalent of the survival instinct is all about being 'coin operated') that you can show that you can commercialise the opportunity presented in the previous answers. Articulation of the drivers are important inputs but it’s the evidence to support the customer lifetime value that is IMHO key. That’s not to say that long term customers are where it’s always at (caveating that even in transactional businesses advocacy is important) but knowing your CTLV number is the key which unlocks the confidence and the funding capability to invest in capital, culture, acquisition, retention and learning. It might be a bit controversial but while there is much to read on the subject of how culture drives business I’ve found it’s the scalability of the confidence around the business model that creates the possibility to invest in culture and that in turn drives the positive outcome. 

5. Do you have the capability to execute? This is the ‘HOW’ question.’ Traditionally the 'team' question, it’s more than that. Yes, the credentials of the leaders are important but it also requires addressing questions of capital availability, IP, personal grit and in a world where the robots are competing with labour consideration of the route to automation and AI. Part of this is considering your taxonomy of execution, not everything is important at the same time and many of the businesses I’ve been involved with have found that bootstrapping, which requires ruthless prioritisation, has proved effective in protecting early shareholder and founder value and making more efficient use of later capital to create bigger long term outcomes. Basis that show me what you will prioritise and when. 

That’s it - as the meerkat says Simples…. What do you think? How can I build on this to make these questions more effective? I’d welcome the challenge.

Jules 

PS:

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