Your Startup is a System You Can Map to Identify Problems, Align the Team & Win
Startups can quickly get complex and confusing, leading to all sorts of issues. (#18)
If you run a startup (at any stage), you know how easy it is to get overwhelmed.
Note: You don’t have to be a founder to get overwhelmed! The rest of this post is going to be relevant for product managers, team leaders, corporate innovators and others that running parts of a business. I may use the term “founder” below, but everything is relevant for other people within an organization as well.
I speak with founders (product managers, intrapreneurs, etc.) every day who are struggling to figure out what to prioritize, how to align team members, what to measure and more.
“Are we focused on the right thing?”
“Are we doing the highest value work right now?”
“Is everyone pulling in the same direction?”
“Does this even make sense?”
“Who’s on first?”
“What’s on second?”
You get the point. Startups, even at a later stage, are dealing with high degrees of ambiguity and uncertainty. It can twist you into a pretzel.
I find it’s always helpful to step back and map your business. Specifically, the goal is to visualize the business as a systems diagram.
If you map out the business, you can better understand where to focus, what to measure, what’s working (and not), etc. It turns out a picture is worth a thousand words…
In Lean Analytics, Alistair Croll and I used systems diagrams to map out business models. To figure out what metrics to track you need to know what business you’re in, and you do that by understanding your business model. A business model isn’t just how you make money, it’s actually everything that leads to making money, the making money part, and everything that happens after you monetize. Your “business model” is the system. Without getting into a big semantic debate, the key point is this:
Startups are systems
The system is basically the “business model” (i.e. how the business works)
Systems can be mapped
Here’s an example:
This is a systems diagram representing a freemium SaaS business. While complex at first glance, it’s actually pretty straightforward. It’s also not going to be perfectly accurate for your business (even if you run a freemium SaaS one.)
The diagram represents how a user/customer interacts with your business, every step of the way. Most of the boxes represent steps (boxes like “Former Users” are more representative of groups of users / user states), and the metrics are tracked between steps (represented by arrows.) For example:
After a user signs up they become active; moving to engaged user, and measured by an “activity” metric such as Daily, Weekly or Monthly Active User (DAU/WAU/MAU) or inactive (measured by a lack of usage, and ultimately churn / freemium churn.)
Some active users will convert into paying users, others will go inactive and churn.
Some paying customers will, hopefully, recommend your product to others, creating a viral loop, which feeds back into acquisition.
And so on.
Regardless of what stage you’re at, you should be able to map out the entire business this way. Some parts of it—if you haven’t built them out yet—will be fuzzy. If you’re just starting out, you don’t care about paid conversion, all you want to focus on is getting users to your website and signing up. Once you’ve figured that out, you care about paid conversion. But you don’t care, immediately at least, about upsells and increasing contract value; you’re just focused on conversion to paid. So the stage you’re at has an impact on where you focus. And what you focus on is dictated by the systems diagram.
4 key points about mapping your business
1. Don’t get too caught up about figuring out the right level of detail. You’ll notice that this systems diagram of your business doesn’t go into the product weeds. “Engaged User” is a pretty open-ended concept. If you were to zoom into that you’d see a whole host of features, behaviour loops, etc. all interconnected in an attempt to create an “engaged user.”
You need to understand all of those details (and feel free to map those flows too!) but that level of detail isn’t necessary for understanding the overarching business model and how the business works.
If you want to dig in a bit more on the product side of things, here are two relevant posts:
As you map out the business, you may find yourself going into too many details—that’s OK. There’s no absolute right or wrong way to do this, but try and stick with the key steps, milestones and user states that matter for moving the business model forward.
2. Don’t carve your business model into stone tablets. Or put another way: Your business will evolve over time. It better. 😊
The systems diagram is meant to be a conversation starter, enabling you and your team to figure out where to focus and what questions to ask. It’s not meant to be a literal step-by-step checklist that you follow.
The map does have a tendency to uncover areas that are less clear or certain, which is a good thing. And you can use it like a living, breathing manifestation of the current state of your business.
3. Remember this is a combination of all aspects of your business: the product, how you sell it & acquire customers, what you charge, how you service customers, etc. You’re trying to get both a 20,000 foot and 2 foot view of your business at the same time.
What becomes clear as the system increases in complexity is that it gets harder and harder to keep everything aligned. The left hand doesn’t know what the right hand is doing.
A negative change in Customer Success quality affects customer satisfaction, which reduces not only renewals but referrals.
Suddenly cost of acquisition is going up, and Marketing isn’t sure what’s happening. They focus all their efforts on optimizing paid acquisition. Except historically paid channels haven’t delivered as high quality a customer as non-paid.
So engagement in the product starts to drop. The Product team panics. They start pushing out more features as quickly as they can, in the hopes that they can keep customers happy. But they add too many valuable features into a lower paid subscription plan, and suddenly conversion is going into lower tiers and existing clients are downgrading.
The CFO is completely losing her mind, because not only are renewals down, but Marketing is spending too much, and customers are downgrading. So the CFO and CEO decide they have to make cuts to extend burn. They make the very tough decision to let go 50% of the Customer Success team, in the hopes that the remaining team members can carry the load.
Um…are we living in an Inception-like simulation, or is this startup thing just crazy hard?!?!
4. The systems diagram helps define your strategic plans, both short and long-term. If you map out your entire business in its current and future state (i.e. designing out the parts of the business you haven’t built out yet) it becomes an overarching view of your strategy.
You can effectively visualize the strategy through a systems diagram, which can be a great way to explain complex information. Visual learners will benefit from grokking the strategy through a diagram versus a 100-page manifesto (don’t get me wrong, I love writing, but pictures pack a punch.)
Here are the other systems diagram examples we did for Lean Analytics:
Mobile App business (mostly focused on consumer / gaming)
Note: These don’t represent the only types of products/services or businesses that exist. And many startups are a combination of models; for example you might be building an e-commerce business that’s dependent on user generated content; or a two-sided marketplace available exclusively through a mobile app. Or, something completely different. Use these as inspiration, not fact.
Everyone at your company should understand how your business works
If you asked everyone at your company to map out how your business works, could they?
Do they understand the whole system or just their part of it?
The problem with being focused is that it eliminates your view of everything else going on around you. And no company is built by one department, team or person in isolation. That’s not to say that everyone has to understand exactly what everyone else is doing, or why, but they should broadly understand how the machine works.
Over the years, I’ve run many exercises with startup teams to map out their business through systems diagrams. When you get employees involved it’s always incredibly revealing in terms of what they understand (or don’t) and where they believe the focus should be.
I can almost guarantee if you run this exercise with your team you will learn something from it (and so will they.)
Quick sidebar: Another way of describing this is “connecting the dots.”
People should focus on their own jobs and tasks. Nosing around in other people’s business isn’t productive. But occasionally that focus does unintentionally break other parts of the business. Sometimes they can’t even figure out if what they’re working on is moving the needle. That’s when people get disengaged and things go south.
This may help you think through that: How to Use the Right Metrics to Motivate Employees & Improve Startup Success
How can you use a business model systems diagram with employees?
Here are a few ways you could engage employees through a business model systems diagram:
Strategy & product roadmapping sessions
Brainstorming & ideation sessions
Executive or Team off-sites (Do it as an exercise with everyone and see how aligned you are as a group)
Onboarding new employees (I’ve never heard of anyone doing this, but it’s 100% doable; as you onboard a new employee walk them through the business model systems diagram; I guarantee it’ll lead to a meaningful conversation.)
How to map your business
The best approach is to think of the customer journey through every touchpoint with your company, because that’s ultimately going to define how your business works.
Get the right supplies: In a group in-person setting do this at a whiteboard or with sticky notes, but you can also use digital tools like Miro or Mural.
Start at the beginning: I find it’s easiest to start with customer acquisition. Regardless of your startup’s stage you’re trying to acquire users/customers (unless you’re pre-MVP; where I still find this is a very helpful exercise to think through things, and you still start with customer acquisition even if you’re not actually in the process of acquiring them.) Most likely you have a website where you’re trying to drive traffic, so list out all the acquisition channels you’re using.
Website conversion: Without going into a ton of detail, map out the high level conversion steps/triggers on the site. Are people asked to sign-up? Are they asked to pick a pricing plan? Etc. You don’t need to describe every tiny step, just the key decision points on the website (which may already lead to debate with your team.)
Now work your way through the customer experience: What happens next? You may veer into too much detail here (product people are notorious for doing this), such as email verification, login, etc. That’s totally fine, but try and abstract some of those details, so you can get to the major components of the business. Remember: You’re not trying to map out every product feature or step, this is about understanding the business holistically.
Capture as many of the steps and user states as possible: As users do things (sign-up, fill things in, create projects, pay, etc.) their “user state” changes. For example, in an e-commerce site it might go from site visitor → browser → purchaser/customer (and from there it could go to repeat purchaser, subscriber, lost user, etc.) Capture each user state and the steps it takes to get from one state to the other.
Go back and define the metrics between steps and user states: You might do this along the way, but I often prefer to do this once I’ve got the map done. Go back to each step and user state to define what metric(s) you’re tracking (or should be tracking.) This could be a very extensive conversation, and is often harder to figure out than the customer journey / steps / user states. If you can’t fill all of this in that’s OK. At this point, you might not know what metric to track at each step or user state, but now you know where there are gaps.
Identify the “hot spots”: Now that you’ve got the systems diagram/map in place, figure out where you need to focus. This is either in a place where the system is breaking down, or the next logical part/section/step in the map. If you’re an early stage startup there’s a good chance you can and should only focus in one place; if you’re part of a bigger organization you’ll be focusing in a few places, but with a better understanding of the push-pull relationship between the parts of the system.
Once you’ve identified where to focus, you need to figure out what to do. This can lead to entirely new ideation and brainstorming sessions. But you’ve got a map to guide you.
My recommendation is to translate those focus areas into assumptions and then experiments. Ask yourself:
Are we ready to move from A to B? How do we know? What would we need to do?
Why are we having trouble with this particular area of the map? How might we fix that?
You can go through a fairly rigorous process to figure all of this out: How to Apply the Scientific Method to Startups Without Being a Zealot.
Startups are an interesting mix of biological and mechanical systems
I don’t want to get too philosophical, but startups are incredibly interesting and complex systems. There are a lot of moving parts, but also those parts evolve and change. We aim to build things in a repeatable and scalable way, which lends itself to thinking of startups as mechanical. But we know startups adapt and depend on more nebulous components including people and culture, which makes them feel biological.
While the systems diagram / business model map might feel mechanical, you can easily update it over time (which gives it a more biological feel.) As you learn new things, iterate and grow your business, more parts of the map will come into focus. You’ll want to change and move things around. The key is that you’ll have a map—a starting point for making changes. Without it, you’ll be doing stuff and things will be happening, but there will be no “source of truth” at a strategic level that you can go back to and check yourself against. That’s why I believe so strongly in mapping out your business—you need a way of visually tracking “all the things,” especially when those things aren’t set in stone.
I have a request…
If anyone reading this decides to go through the exercise of mapping their business, either individually or in a group, please let me know.
I’d like to feature examples / case studies in Focused Chaos (if you’re open to that)
If you send me a version of your system diagram I can aim to provide feedback
I want to see if you found the experience helpful
You can just email me at email@example.com
Thank you. 🙏
What I’m reading
Bringing growth to life through a state model by Ben Williams: There are a lot of parallels in what Ben is sharing in his post. Definitely worth checking out. And subscribe to Ben’s newsletter too!
The Product Compass by Pawel Huryn: This is all about product management, and he’s got a ton of fantastic content + resources. Some of it is paid. Personally, I’d pay.
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