Disciplined Entrepreneurship: A Summary of the 24 Steps

When I first embarked on the startup journey, I thought it was all about hustle, grit, and riding the waves of innovation. While those qualities are essential, Disciplined Entrepreneurship by MIT’s Bill Aulet showed me that a structured approach can bring some order to the chaos of building a business.

Here’s my summary of the 24 steps outlined in the book that help turn an idea into a thriving company:

Pre-requisites 

1. Idea/ Technology that the world can benefit from 

2. Do I do this well/ would I love to do this for an extended time period?

3. Team of co- founders. 

• Step 1: Market segmentation
  Start broad, then narrow down to identify your ideal market segment. Points to remember: (a) The single necessary and sufficient condition for a business is a paying customer. (b) Create a new market that you will dominate. (c ) It is likely you will not find a perfect market opportunity, but there rarely is one that is “perfect.” Do not let yourself fall into “analysis paralysis.”

• Step 2: Select your beachhead market
  Choose a niche market that’s highly focused. You want to dominate this first. 

  Points to remember: Choose a single market to pursue; then, keep segmenting until you have a well-defined and homogenous market opportunity that meets the three conditions (customers in the market buy similar products, have similar sale cycles and expect products that provide similar value, compelling high value references for each other) of a market.

• Step 3: Build an end-user profile
  Create a clear profile of your ideal customer in that market.

  Points to remember: (a) You must continually talk, observe, and interact with your target customer to obtain this information and reconfirm it. Primary market research is fundamental to your success. (b) Once you have done this primary market research, it may well be the most valuable information you will have. (c ) You do not want to spend your time and resources trying to be everything to everybody.

• Step 4: Calculate your total addressable market (TAM) for the beachhead market
  Figure out how big your opportunity is in terms of revenue potential. 

  The TAM is how much annual revenue you would accumulate if you achieved 100 percent market share. This is used only for your first beachhead market. A bottom-up analysis, where you can show how many potential customers you have identified from your primary market research and extrapolated to the broader market, will give a more accurate picture of your market. Complementary to this, but much less compelling on its own, is a top-down analysis where you are working with market analysis reports and extrapolating without direct interaction and validation. Often, very important subtleties are missed in top-down analyses, so you need both.

• Step 5: Profile the persona for the beachhead market 

  Get detailed—who is your customer, and what do they truly need?

  The process of developing a Persona provides specific details about the primary customer within your beachhead market. You are now selling not to some “end user profile,” but to a specific individual. Your whole team should be involved in this process to ensure everyone is on the same page and truly understands the Persona, so they can maintain a customer-based focus.

• Step 6: Full life cycle use case 

  Creating a visual representation of the full life cycle of your product enables you to see how the product will fit into the customer’s value chain and what barriers to adoption might arise. Just showing how the customer uses the product (the typical definition of “use case”) will not provide an accurate enough picture to fully understand what obstacles will come up when trying to sell your product to your target customer.

• Step 7: High level product specification 

  It is a visual representation of what your product will be when it is finally developed based on what you know at this point of the process. It is something you draw without understanding all the underlying details, but which gains consensus within your team on where you are going. The process of identifying and outlining your High-Level Product Specification is further strengthened by describing the various features of your product, explaining how these features translate into function, and most importantly, describing the benefits your customer gains from each.

• Step 8: Quantify the value proposition: 

  The Quantified Value Proposition is framed by the top priority of the Persona. You first need to understand and map the “as-is” state in a way familiar to the customer, using the Full Life Cycle Use Case. Then, map out the “possible” state of using your product, clearly indicating where the customer receives value based on the Persona’s top priority. In a simple view of the world, benefits fall into three categories: “better,” “faster,” and “cheaper.

• Step 9: Identify your next 10 customers: 

  One potential danger of focusing solely on your Persona is that you could build your business to be too specific, focused only on the Persona without the ability to sell to other customers. If the Persona is done correctly, this will not happen. The TAM calculation was the first checkpoint to guard against hyper-focus; this step is another one. Also, the output of this step, a list of 10 potential customers beyond your Persona, will be highly beneficial to you as you proceed. If you find that you cannot create a list of 10 customers who are excited about your High-Level Product Specification, then you may need to reconsider your beachhead market.

• Step 10: Define your core

  Explain why your business can provide customers with a solution that other businesses cannot nearly as well. This will be the new venture’s eventual crown jewels. Defining the Core is the first step where you spend a lot of time looking internally, in contrast to the strong customer focus of many of the other steps. The Core is what you have that your competitors do not, that you will protect over time above all else, and that you continually work over time to develop and enhance. Once you agree on a Core, it should not change without a great deal of thought; instead, you should continually make your Core stronger.

• Step 11: Chart your competitive position

  Defining your Competitive Position is a quick way to validate your product against your competition, including the customer’s status quo, based on the top two priorities of the Persona. If you are not in the top right of the resulting chart, you should reevaluate your product, or at least the way you are presenting it. This will also be a very effective vehicle to communicate your qualitative (not quantitative) value proposition to the target customer audience in a way that should resonate with them.

• Step 12: Determine the customer’s decision making unit (DMU) 

  Having determined how you create value for the customer, you must now look at how the customer acquires the product. To successfully sell the product to the customer, you will need to understand who makes the ultimate decision to purchase, as well as who influences that decision. The Champion and the Primary Economic Buyer are most important; but those holding Veto Power, as well as Primary Influencers, cannot be ignored. B2B situations are easier to map out. 

• Step 13: Map the process to acquire a paying customer 

  Answer the following: (a) How customers will find out about your product. (b) How customers will analyze your product. (c ) How customers will acquire your product. (d) How customers will install your product. (e) How customers will pay for your product

  A seasoned entrepreneur with extensive industry experience may be able to build a map of the process relatively quickly; but the first-time entrepreneur will find the task tougher, with lots of educational moments on how the real world works.

• Step 14: Calculate TAM for Follow on markets 

  The Calculation of the Broader TAM should be a quick validation that there is a bigger market and should reassure team members and investors that your business has great potential in both the short term and long term.

• Step 15: Design a business model

  A business model is a framework by which you extract from your customers some portion of the value your product creates for them. It is the idea that the amount of money your venture gets paid is based on how much value the customer gets from your product, and not some arbitrary markup based on your costs. The business model is an important decision that you should spend time focusing on. The decisions you make here will have a significant impact on your profitability, as measured by two key entrepreneurship variables: the Lifetime Value of an Acquired Customer (LTV) and Cost of Customer Acquisition (COCA). Do not focus on pricing in this step, as your choice of business model has a far larger influence on profitability than your pricing decisions.

• Step 16: Set your pricing framework
  Pricing is primarily about determining how much value your customer gets from your product, and capturing a fraction of that value back for your business. Costs are irrelevant to determining your pricing structure. You will be able to charge a higher price to early customers as opposed to later customers, but be flexible in offering special, one-time-only discounts to select early testers and lighthouse customers, as they will be far more beneficial to your product’s success than the average early customer. Unlike your business model, pricing will continually.

• Step 17: Calculate the LTV of an acquired customer
  Overall, it is important for you as a disciplined entrepreneur to operate not with blind optimism but rather with real numbers and to understand what drives those numbers. The Lifetime Value of an Acquired Customer calculation is the profit that a new customer will provide on average, discounted to reflect the high cost of acquiring capital that a startup faces. It is important to be realistic, not optimistic, when calculating LTV, and to know the underlying drivers behind LTV so you can work to increase it. You will be comparing the LTV to COCA. An LTV:COCA ratio of 3:1 or higher is what you will be aiming for.

• Step 18: Map the sales process to acquire a customer
  Mapping the sales process is a thoughtful first pass at how you will enter the market, refine your sales strategy over time, and ultimately establish an inexpensive long-term strategy for customer acquisition. The sales process includes creating awareness, educating the customer, and handling and processing the sale. The sales process drives the COCA, one of the variables—along with the Lifetime Value of an Acquired Customer—that shows your business’s profitability.

• Step 19: Calculate the COCA (customer of customer acquisition) 

  COCA includes sales and marketing costs but does not include fixed production costs and expenses like finance, admin, R&D, overhead. We should not do a bottom up calculation of COCA but a top down analysis. COCA starts at a very high point at the time of market creation and have to aim to reduce it in the long term to make the business more attractive. 

• Step 20: Identifying key assumptions
  Determine which assumptions about business have not been thoroughly tested, rank 5-10 assumptions in order of importance. 

• Step 21: Test key assumptions 

  Design empirical tests to validate/ refute key assumptions

• Step 22: Define the MVBP (Minimum viable business product)
  MVBP represents a system test of a product that actually provides value to the customer. The paying customer can use this to start a feedback loop that helps you iterate better versions of the product.

• Step 23: “Show That “The Dogs Will Eat the Dog Food”

  After launch, show measurable proof that the customers are adopting the product.

• Step 24: Develop a product plan
  Determining which markets to sell to after dominating the beachhead market and how products will have to change for each market. That next market, or “pin” in the bowling alley metaphor, will have a different Persona but should still leverage the Core and be a logical next step for the business. The idea is to start thinking ahead and not get too bogged down in your beachhead market, which is only the first step as a business.

Bringing It All Together

While entrepreneurship may feel chaotic, Disciplined Entrepreneurship provides a structured roadmap to help navigate through it. By following these 24 steps, you can reduce the guesswork, focus on solving the right problems, and build a venture that thrives.