The North Star is the first phase of a new, five-phased business operations system for startups called Business Operating Support System, or BOSS. Briefly, BOSS is an agile operating system that incorporates ideas and best practices from the most effective methodologies in business, software and manufacturing.
BOSS creates efficiencies through a structured approach with five phases that set the Vision (or North Star), Strategy, Execution, Standardization and Business Improvement Processes needed to achieve alignment on company objectives, goals and measurable results utilizing leading and lagging KPIs.
The first phase of BOSS, the North Star, consist of four steps; What, Why, Who and Exit. In previous articles, I’ve explained how each of these four phases are developed and how they contribute to launching and profitably operating your startup. Let’s tie it all together.
The What is, unsurprisingly, all about what you are selling and the focus is on three things, First, the description, or a clear and concise explanation of what you are selling. Second, the features, or a detailed sharing of the specific features of your product or service. Third, the benefits, which define the heart of the positive nature of your product or service.
The Why is all about why you and your startup exist and consists of three elements. First, you must define the actual problem your customers are having otherwise the net reason as to why you plan to sell what you intend to sell is directionless. Second, you must focus on a short and succinct statement that defines the solution you are proposing which is intended to solve the aforementioned customer problem. Third, you will define what impact your solution will have on the customer if they choose to buy your product. This step is a direct answer to the stated problem and outlines the desired outcome or the results the customer will realize once they have implemented your solution.
The Who helps you develop a clear picture of your intended or existing customers to whom you wish to sell. It involves the creation of your Ideal Customer Profile (ICP), Ideal Buyer Profile (IBP) and User Stories. The Ideal Customer Profile is a detailed description of the ideal company you are selling to that would most greatly benefit from your offering. The Ideal Buyer Profile is a detailed description of the elements of that company. A User story is a brief statement from the end user perspective that zeroes in on and combines who the customer is, what they want to do and what they hope to achieve if they do what they want to do.
And, finally, what most startup entrepreneurs seek, the Exit. In developing your exit strategy, you will focus on two things; how much can you sell for and when can you sell. Let’s first look at How Much.
There are five elements involved in determining how much you can sell your startup for. Firstly, it will have to determine why the buyer wants to make an acquisition; either to help their existing revenue or to boost profits. Second, you will look at what the buyer hopes to acquire. Are they more interested in acquiring the company; in other words the intellectual property and/or the resident knowledge and expertise of the executive team. Or is the buyer more interested in how your product can benefit the company.
Third, you’ll take a look at the buyer’s viewpoint on top line revenue versus bottom line revenue. You’ll need to know which one is most important to the buyer and, as well, which one your startup is best at contributing to. Fourth, you’ll look at the drivers that motivate the buyer. There are four elements here; revenue growth (actual and percentage growth year over year), retention rate (customers retained from one period to another), profit margin (how many cents of profit a business has generated for each dollar of sale), and base and attachment rate.
Fifth, you’ll need to explore the top line and bottom line multiples the buyer has in mind and apply them to your top line and bottom line revenue to arrive at a sale price.
Regarding When you can sell, there are three things to look at: revenue, profitability and actual exit metrics. Revenue encompasses a working product with paying clients and product validation. Profitability encompasses expense, income and profit, and determines you break even point. Exit encompasses the achievement of the metrics you worked towards when determining how much you can sell for: growth, retention, margin and attachment rate. Goals are established for each of these categories. They are then plotted on a chart. When the end goals have been reached, you are ready to sell.
In conclusion, each and every one of these steps forms the foundation of your business, its reason for being, the problem it aims to solve, the people who will benefit from your solution and how you will exit. It’s important that you understand and have determined most of these elements (What, Why, Who) long before you launch or at least during the earliest stages of your startup’s development. Your North Star is your roadmap. It defines the basics and supports those basics with numerical values.