“All your ideas are illusions“: the Tolstoy Show creators about scientific approach to startups

How to build a successful startup? For now no one knows for sure, but there already are scientific approaches that exclude the most common mistakes in this sector. In Russia, the Tolstoy Show and MetaBeta accelerator creators promote a clever attitude toward startups, working with the customer development and lean startups techniques. T&P learned from Eugene Ginzburg and Dmitry Maslennikov about the first steps to start a business, how to properly call startup entrepreneurs, the reasons for fighting against business illusions and why failure is the biggest gift.

— What had you done before you came up with the idea of ​​finding a scientific approach to business?

Eugene: I have been engaged in custom development on the Internet for 15 year creating websites, systems and services in Lebedev Studio and then in my agency Lebrand. During the past 10 years, I have received a lot of orders, which can be called “make us a startup“. So, a person comes with a picture of the future in his head. There was a widespread idea among visionary entrepreneurs, especially in the 1990s and early 2000s: the more difficult the name, the cooler everything looks: “Virtual virtualisation of virtual users in virtual worlds“. There was a lot of imagination, and a lot of what is called vision.

We performed these tasks and were direct witnesses of how far these plans were from reality. We saw all the mistakes, what exactly was wrong in the order and in the work we were urged to do. We held on few years, and it became clear that we could do a lot ourselves, since we knew it. “As we are so clever“, we began to do our own things.

— Where did you start?

Eugene: For example, my colleague Dima Komissarov, the Lebrand agency co-founder and art director, has always come up with bold concepts of different things, advertising companies and so on. He invented several objects, published them on the Internet and got publications all around the world. If you google “Russian designer“, he comes in the first place. One of the most famous concepts, which probably got the most publications, was a flash drive which swelled up when you uploaded files to it, and became deflated when you deleted it.

Long story short, he invented several things, produced them, brought them from China, signed contracts with manufacturers, sold them here, licensed them in America and so on. It’s just an example of what we think: are we really the smartest or still need to learn?

The next big project we made was the Smile gift certificate project. Some guys came to us saying they saw a concept abroad and asked us to adapt it here, brand it, pack it and help to sell it. This was our first business project.

“Lean startup is an iterative movement. It’s not when you do something very big at once and show it when nobody needs it. It consists of making little steps and getting feedback for each of them. It’s simple“.

— So you realised that you had some baggage of unique knowledge for our market?

Eugene: Yes, and I wanted to share them. For example, launching the Smile project it turned out that we did many things, like lean startup and customer development, intuitively, unconsciously realising that it was right. Since we do not have huge investments, we act at our own expense and every step should be considered. We did go step by step, made a lot of experiments and tested them.

— Have you intuitively half-invented customer development and confirmed your guesswork?

Eugene: Yes. Perhaps, thanks to the fact that we did not have an investor who we would feel more relaxed with and understand that we did not need to earn money right then and still had some time. Here we really needed to make profit very quickly. I can’t say that we acted unmistakably. Maybe we could have made many mistakes cheaper and more economical, if we knew that we were acting according to a certain methodology. There are some concrete steps in it that allow to make these errors quickly and cheaply.

Dmitry: I have a similar experience. I made a big project related to entrepreneurship and startups. It was a virtual incubator based on the idea that it was possible to create a conditionally unlimited number of businesses using crowdsourcing technologies, Internet platforms and everything related to it. We did it for a long time, made a lot of mistakes, probably all that needed to be made. Only after this experience we came to the fact that it was necessary to work with our own hands and stick with the methodology I learned in the process of creating this startup. This is how I came to lean startup and customer development, trying by my own experience what happened without and with them and how we intuitively used it in previous projects.

— Let’s move to the definitions. What is customer development and lean startup?

Dmitry: Customer development is the project development around the client’s needs. Not around an idea or its functionality, but around the client and his problems. Lean startup is an iterative movement. Not when you do something very big at once and show it when nobody needs it, but when you do little steps and get feedback for each of them. It’s simple.

The customer development creator is Steve Blank. His follower student added the “lean“ concept there. In the end, it turned out in two separated concepts, customer development by Steve Blanc and lean startup by Erik Rees. Slowly but surely, new followers began to appear. For example, in the case of IT projects, there is a very famous person from the 500 Startups accelerator Dave McClure. He proposed AARRR metrics. These are also internal things, which will probably be incomprehensible to unprepared listeners.

Eugene: I would suggest to describe the customer development with an example. There is a project dedicated to fuel cards. A fuel card is a tool for paying gasoline. This is our project for the B2B market, for corporate car parks, for companies that have from one to ten cars on the balance sheet. The cards allow you to add 18% VAT in the gasoline price and see where the driver refuelled, what gasoline he or she uses and so on. It turned out that my business partner worked in this industry and saw there some available space that was not occupied by anyone, just these corporate car parks of one to ten cars. Unexpectedly, this market cost was about $ 6 billion.

First, we wrote a certain concept of how everything would look, but we have neither an investor nor even an understanding of what to do exactly. As for customer development, we moved forward. We wanted to find out what people were in this market, what they needed, what their concerns were. In the language of customer development, what their biggest concern is, what they can not do on their own. What they are ready to pay for right now, even for a not totally perfect solution. When an entrepreneur feels this concern.

— Is it like business psychoanalysis?

Eugene: Kind of. We have a presentation from our training where we use a large picture of a crying person. We tell entrepreneurs that if the person you interview during customer development looks like this, then you are on the right track. You have found a customer and a problem. This is a person who will not let you go. He must tell you: “That’s it, do not go away. You have not done anything yet, but listen. Take my phone number. As soon as you do, call me, because it is really my concern“.

— That’s what happened with fuel cards?

Eugene: We found out that no one knew that such market existed. If you searched the “fuel card market“, there was not a single page on the Internet on this topic. We created an information web portal about it, and Vedomosti and other business media quoted us because of a lack of any information about the market. We carried out an independent market audit, named the main players, divided their shares. We immediately started receiving calls from our future customers and began to communicate with them trying to find out what they needed. Thus, we eventually (within two years actually) understood what the market consisted of, what needs and which customers it had. In two years we could already feel the business model which attracted investments, and launched it as an independent business project.

Dmitry: Eugene and I have been business partners for more than two years. At some point we realised that our knowledge could be applied to our own internal projects and to projects that came to us from outside. We thought that it would be wrong to keep them only for our use. We needed to share them. So we made the basis from that knowledge, applied it on our practice, took lean startup and custom development as the methodologies that came from the West, and started applying them in the practice of working with entrepreneurs. When they directed to us with some ideas, prototypes, products, we did not work with them the way a conventional agency did two years ago, but with a new experience, with the help of lean startup and customer development.

— And how did the Tolstoy Show appear?

Dmitry: At the beginning of that year we’ve got acquainted with Yandex. We thought that the experience we had accumulated could be applied to the program organised by the company for entrepreneurs from all over Russia and CIS countries. It was an experimental program, where people, not projects, were gathering. We selected 70 people from 1500 applications, interviewing on Skype, making questionnaires, assigning tasks to perform and so on.

They were active people who had already done something in their life and had shown that nothing would stop them. At the same time they were flexible enough and were not stick with “I will do only my project“. On the contrary, they were ready to join. That event was called Tolstoy Summer Camp. Together with this project, we launched our company MetaBeta. It is an accelerator, which is dedicated to a methodological component.

“People do not appreciate, they think that failure means you are a loser. That you have no prospects. Although in our methodology a quick failure is a huge gift. You are very lucky to learn that this way is a dead end, and you’ve done it very quickly and very cheaply“.

— How were these businessmen and people who wanted to go further selected? Still it is a big contest, 15 people per seat.

Dmitry: There were several criteria that needed to be met. The first one, you had to be a developer, a manager or a designer. The second one was your desire and willingness to participate in the whole process. Someone had to sacrifice something: to quit their jobs or get leave. Third, you should have been ready for joining other team to continue participating if your idea did not pass.

Eugene: Initially, it was an accelerator for people, not for projects or ideas, as it happened in other cases. We gathered these people to work with them. We organised an internal group dynamics, when people were divided on teams and presented ideas. Some ideas did not pass. Then these ideas turned into projects, we continued working with the projects, then we carried out the next dropout. So we got only 12 projects that came to the end. Of course, everyone was different, but most people came without knowledge and skills of using the startup development methodologies. Basically, everyone described their products according to their functionality, some tricks, advantages, and so on. Probably the first two week of the trainings we were knocking some sense into the participants, changing their approach from functionality to who their client was, what concern they needed to solve.

— How did you correct the projects with the help of these methodologies?

Dmitry: We can tell about our internal project related to 3D printing, which originated from the idea of ​​printing people’s figures exclusively. We thought that was great: we scan people, print them, and people from the Rublyovka (a very expensive zone in Moscow — translator’s note) pay a lot of money to buy them. It seemed that we got it and we only needed to buy a printer, a scanner and to start doing. But we went to the well-known path of the methodology and began to test the hypothesis and look for what people would like to print in general. What were their needs?

Eugene: We had a suppose that the pets owners would like to get its 3D figure to put it on the desk. We created the website, contacted other sites where the pets owners were frequent users. At some point, we saw that there were architects and developers who ordered small-size structures that could be printed. Sometimes it’s faster and cheaper. So we also made a special product for them.

Dmitry: We found a large number of competitors, Western analogues that worked with 3D printing. We saw from a different point of view what they were doing and what people here in Russia wanted us to print. By carrying out interviews and tests, we turned our inicial idea into a marketplace, a service where you could go, choose this or that 3D model, make some modifications to it, write text on its surface, apply a design, repaint, select material and send to print. This is the transformation the project went through in a very short period of time.

— How do you adapt these approaches to Russian realities?

Dmitry: When you tell a person that you need to hold 20 or 50 interviews and ask seemingly strange questions the entrepreneur who should carry out this interview, it does not seem very convenient. According to this mindset, everyone wants to sell you something.

— Is this the Russian mentality?

Dmitry: Yes, it is. Applying the customer development practice, you can come to talk, ask how you spend your day, what you dedicate your time to, and in this conversation you understand that this person has a hidden problem. He or she can not reveal it and just tell you about it, but you have understood it yourself and will try to develop and offer a solution.

Eugene: They say that this is very common in Silicon Valley. It is very easy for almost any person to go with someone for a lunch or breakfast and just talk. He or she will not think that you are selling something, will not ask for money for a paid consultation or something like that. This is common. Start working directly with the client is quite hard for many people, including in the West. I can’t say this is mainstream. It seems a very understandable thing, but you need even more efforts to transform it into an obvious practice that everyone should be engaged in, like the Tolstoy Camp participants. There’s a big difference between our mindset and the western one, in particular, in this methodology: here the megaprojects prevail. We always need a “wow“ effect: a spaceship, a lot of money, a huge building! That is why it takes twenty years and a lot of money to create it. Another problem is that people do not know to learn from mistakes and think that failure means you are a loser and have no prospects. Although in our methodology a quick failure is a huge gift. You are very fortunate to learn that this way is a dead end, you did it very quickly and very cheaply. Now you have the knowledge that no one around you has.

“We tell entrepreneurs that all their ideas are illusions. It is very important to understand that I have some sort of illusions and I need to make them down-to-earth. And there are lots of illusions in every project“.

— How does the accelerator work?

Dmitry: Our acceleration program is limited in time. We have several formats, depending on the stage the project is at. The main stage is the incubation, when it is necessary to reach the hypothesis testing from the idea. We believe that this should be done in three months. In these three months a person should totally immerse in the project, focus and check all the hypotheses very quickly. In three months it is necessary to have already tested hypotheses, which you can either show to the investor, or to proceed further independently, always remembering that all this is not a fact, but an illusion. During this period, many people reach a situation where everything is so clear that they do not need investments, credits are enough. They understand that if they invest one dollar, they will get back three. To take a loan is easier than to attract an investor.

— When someone starts to embody the idea which seems to be checked many times, what happens next?

Dmitriy: There is second stage for that. Regarding the situation when all the hypothesis are verified and we need to find a correspondence between the product and the market. Each project has hypothesis about its scale and its value. If we prove the hypothesis about the value by finding the problems and the solution is in demand, but we don’t know how many people will use it in perspective. There’s next step which we call acceleration. It includes ongoing projects that have already received investments, so our task there is to accelerate their growth and to find new points where it will grow steadily and explosively.

Eugene: We tell entrepreneurs that all their ideas are illusions. It is very important to understand that I have some sort of illusions and I need to make them down-to-earth. And there are lots of illusions in every project. The first one is the client’s identification: “I thought that these were 70 years old grandmothers and they turned out to be 15 years old girls“. I exaggerate, but this changes the whole business very often and very seriously. Especially when a person sees that grandmothers are also a great client, but there are few of them. The market for grandmothers is smaller.

Books that will help an entrepreneur “fix his brains“:

• “The Entrepreneur’s Guide to Customer Development“, Patrick Vlaskovits and Brant Cooper
• “The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses“, Erik Ries
• “The Mom test: How to talk to customers“, Rob Fitzpatrick

— How specific should this client be? Does a potential startupper narrow down his audience in a very tough way?

Dmitry: A small remark. We try to stop and to make everyone stop using the word “startupper“ and call them what they really are, entrepreneurs.

Eugene: A startupper wants to build a startup, and an entrepreneur wants to build a business. There is a big difference. It is not always immediately clear, but some time goes away, and it is a pity. When you realise that a person, in general, does everything to stay at the start-up level just to hang out, to discuss: “I have a startup“, “I have two“, “I have three“. This is a very important point.

In the startup sector there is another important figure, the investor. Especially in technological projects, where a rare project can grow without an investor. An investor is needed at the stage of rapid growth. Accordingly, the startups we work with are mainly oriented to a large market where rapid growth is possible. Answering your question about narrow audience:

There must be a big growth and a big market. Then the investor who invested a hundred rubles, can expect to get back a thousand. That is why he takes the risk. If he invests a hundred rubles and gets one hundred and fifty, then the risk is much smaller.

— Do you follow the methodology development and the latest research in this sector?

Eugene: Of course. We are also involved in this. We ourselves make tools for our projects, order books, translate. By organising the Tolstoy Summer Camp, preparing for it, we wanted to find similar ones, entrepreneurs who also promote and use lean startup and customer development. It was very difficult to find them. We found only a few. Now we plan to use a methodology book for training of so-called methodologists who can work with entrepreneurs on these concepts.

Dmitry: Our project, the MetaBeta accelerator, is considered as a startup. It is a startup. Our first “evangelists“ are those who participated in the Tolstoy Summer Camp. And now we need to grow.