Startup Innovation: The Art of Betting Wisely

Startups, on the other hand, are forced to innovate to survive. It's all they are about really -otherwise, why would we need them? They need to tackle a problem in a way that is better or cheaper than currently available, and for that, you need innovation. But startups too make crucial mistakes along the way. At my startup (ExperiRace) we had some good bets, and obviously some bad ones. It's all about betting wisely, so you can take luck out of the game.

In this article, I will dive into some lessons I've learned about innovating while running our startup, sharing what I experienced working well and, of course, where we could have done it better.

The Startup's Resources: Chips to Invest

As a startup, you will not have an unlimited budget, most of the time you are likely starving. But as an entrepreneur, you do have three critical resources or "chips" you must invest, and invest wisely:

Your equity

Equity is a powerful resource that can attract talent, investors, and partners. When you offer equity, you're giving a piece of your company in exchange for something valuable, whether it's expertise, funding, or strategic partnerships. As an entrepreneur, you need to decide carefully when and to whom you give equity, ensuring it aligns with your long-term vision and growth strategy.

Your time

Time is your most finite and valuable resource. Where you choose to allocate your time can make or break your startup. Focus your efforts on high-impact activities that drive growth and move your company closer to its goals. This means prioritizing tasks like product development, customer acquisition, and strategic planning over less critical activities.

Your money

Financial resources, though often limited, must be spent wisely. Every dollar you invest should be aimed at generating a return, whether through marketing campaigns, hiring key team members, or developing your product. As an entrepreneur, it's essential to track your spending closely, avoid unnecessary expenses, and always be on the lookout for opportunities to stretch your budget further.

Investment Decisions

When deciding where to invest your chips, you need to do it very carefully. From my experience, these are a few useful pointers:

Be Strategic with Development

Usually, people rush into development, thinking that if they only had the software ready at a certain level or feature, everything would fall into place. In many cases, you don't need full-scale development to test an assumption or even to move forward. Development is expensive and slow. If one of the founders can code, think carefully before hiring another developer to accelerate progress. Consider all options for testing assumptions and exploring other development paths. Maybe your founders can code alone for a bit longer. Evaluate if this development acceleration is mandatory or if the investment should go elsewhere.

Play to Your Weaknesses

Examine your founding team's strengths. For example, if you excel in product development, you will ironically be tempted to invest more in it. That's obviously not always the wisest choice. Instead, invest in areas where you lack expertise, such as sales or marketing. Offering money, equity, or both to bring in these missing qualities is crucial. Resist the temptation to invest in your strengths and comfort zone, and focus on filling the gaps in your team's skill set.

Manage Your Chips Wisely

Every problem can be addressed with time, money, or equity, but these resources are finite. Raising funds means exchanging equity for more time and money, which is a critical part of the startup game. With the right investments, especially those that lead you to stronger customer traction and product-market fit your chips will start to grow organically. With more traction, you gain more revenue, attract better offers from investors, and ultimately buy yourself more time to grow and innovate.

Don't Sit on Your Pile

Even if you have a big pile of equity or money, your time will run out. Don't hoard your equity, but don't give it away too loosely either. A smaller slice of a big pizza is better than half of a very small one (or of an empty box). If you need to bring in a superstar who will only join for 10% equity, don't hesitate. It's better to have 20% of something than 40% of nothing.

Define, Measure, and Act Based on Outcomes

Because the investment, or bet, could be your last one and is so expensive, you need to execute it with a relentless emphasis on outcomes. This means:

Be Outcome Obsessed

Bring outcomes into your conversations. Ask why you are doing what you are doing and what you want to achieve from it. Keep the outcome conversation alive and measured against clear metrics. Common Pitfall: People often focus on outputs rather than outcomes without realizing it. Outputs are the deliverables (like tasks completed), whereas outcomes are the results achieved (like revenue generated or customer satisfaction improved).

Define an Outcome of What You Expect the Investment to Bring

Define clear outcomes such as revenue, customer acquisition, product adoption, lead generation, website traffic, reduced onboarding time, etc. Even if the outcome is learning something new, it should be measurable and analyzed to understand what happened, why it happened, and how to improve. Common Pitfall: Projects often start without a clear definition of what success looks like in measurable terms. This lack of clarity can lead to ambiguity and misunderstandings later on.

Measure it at Frequent Intervals, Say Weekly

Demonstrate meaningful progress or learning to your co-founders or stakeholders every week. Proactively share outcomes, even if they include failures. Define your learning objectives at the beginning of each week and report on them at the end. Common Pitfall: Failing to establish a measurement framework for outcomes can lead to decisions based on intuition rather than data. Choosing metrics that are difficult to measure or relying solely on gut feelings can skew perceptions of progress.

Act Upon the Results

Whether you succeed or fail, every outcome provides an opportunity for learning. Use critical thinking to decide whether to continue, tweak, or terminate initiatives based on weekly insights. Common Pitfall: Delaying decisions or avoiding confrontations due to reluctance to admit failure can prolong ineffective strategies. It's essential to recognize when an initiative isn't working and take decisive action to pivot or stop.

Sharing these learnings - on my real-life example

Now I have come to the favorite part, and I want to share with you how at ExperiRace we matched up to these learnings. I am proud of our successes and failures, and I hope sharing these "as is" will make them more valuable and tangible for you.

What We Did Well with Our Investments

1. We Were Outcome Obsessed: At ExperiRace, we maintained a relentless focus on outcomes. Every decision and action was driven by what specific outcomes we aimed to achieve, whether it was revenue growth, customer acquisition, proving product-market fit, or simply learn something new. This obsession ensured that our efforts were always aligned with measurable goals, fostering clarity and accountability throughout our journey.

2. We Had Weekly Cadence to Manage Our Learning: We structured our weeks around learning objectives. Each week began with a clear understanding of what insights we needed to gain and ended with a proactive sharing of what we had learned. This disciplined approach not only accelerated our learning curve but also enabled swift adjustments based on real-time feedback, keeping us agile and responsive in a fast-paced market.

3. We Measured Everything, with a North Star and Sub Metrics: Metrics were at the core of our decision-making process at ExperiRace. We established a primary North Star metric - such as customer acquisition cost or product adoption rate - and complemented it with secondary metrics to provide deeper insights into our performance. This comprehensive measurement framework allowed us to identify strengths, pinpoint weaknesses, and continuously refine our strategies for sustainable growth.

Our Mistakes

1. Over Investing in Development Instead of in Sales: We prioritized product development over sales and marketing efforts, assuming that a superior product would naturally attract customers. This imbalance led to a delay in achieving repeat customers, business traction and revenue growth, hindering our ability to prove product-market fit.

2. Didn't Grow Our Chips Organically by Getting Business Traction on a Smaller Scale: Instead of focusing on incremental growth and building a solid customer base from the ground up, we sought rapid development and expansion. This approach overlooked the importance of organic growth, which could have provided valuable insights and validation before scaling operations.

3. We Sat on Our Equity Pile: Despite having sufficient equity, we hesitated to allocate it strategically to attract key talent or secure vital partnerships. This reluctance to leverage our equity effectively limited our ability to strengthen our team and ecosystem, potentially stalling our progress in critical areas of business development. Sadly, we ended the game while still having many unused chips to play with.

4. Avoided Chasing the "Hard to Get" outcomes: While we rigorously evaluated our product against clear outcomes, we often avoided pursuing challenges that required significant effort or risk on the business side. This cautious approach prevented us from tackling ambitious goals that could have ignite more business traction.

5. Betting All on the Same Horse: We persisted in making running races our primary focus, neglecting exploration into other event types and business models. Despite seeing limited progress in our initial B2B track, we continued investing resources into iterating and "forcing it to work", rather than diversifying our approach. This tunnel vision restricted our ability to pivot effectively and explore potentially more lucrative avenues that could have led to organic growth and traction among untapped customers and use cases.

Summary

Use your chips wisely. Don't sit on your pile, and don't spend it on the wrong things. Know that you have time, equity, and money to play with and exchange, but also understand that the odds are against you. As a startup, you're in a position where survival depends on making strategic investments that are essentially bets, given the uncertainties involved. However, through diligent effort and a methodical evaluation process focused on outcomes, you can mitigate risks and increase your chances of success, effectively taking luck out of the equation.