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Why your startup needs to be at the “Edge of Chaos”

Dharmesh Raithatha

Product Partner @ Forward Partners

Over the years, we have helped a large number of very early stage founders launch and grow their startups. We put in a lot of work to help them follow great practices so that their startup will succeed. But that doesn’t mean your startup should feel like an orderly system. In fact, a lot of founders remark on how chaotic it can seem at times. This article talks about why being at the “Edge of Chaos” is where you want to be and how you can get your startup there.

Key Takeaways

  1. Startups are meant to feel slightly chaotic

  2. Your startup should constantly be adapting to feedback

  3. You should use a system to build different feedback loops into your business
     

So, where is the “Edge of Chaos” and what has it got to do with my startup?

In the fields of science and mathematics, the “Edge of Chaos” refers to a region in which systems operate in between complete randomness and complete order. It’s where all the exciting stuff happens. Water exists at the Edge of Chaos (order is ice, chaos is gas) and life on Earth as we know it depends on it. In fact, mathematical models of evolution have shown that complexity is at its peak in this region. Physicists have shown that any system that adapts based on feedback will end up at the Edge of Chaos.

That is why your startup should feel slight chaotic. If you want to create something disruptive, new and exciting that grows fast, it needs to be a system that adapts based on feedback and feels like it is in between order and disorder.

The order comes from using a system to provide structure to building product, driving growth, finding talent and raising money. The system includes how you incorporate feedback, how you adapt and has a rhythm that you follow. Daily, weekly, monthly, quarterly and annually.

The chaos comes from the rapid changes you’ll experience as your business grows. Your product, your growth tactics and channels, your organisational structure and your customer's needs and desires. You will also always be on the fringes of a cash shortage and short of the number of people you need to execute as you wish.
 

Feedback loops

You need to build feedback loops into your business and learn to adapt quickly.  Below are some of the feedback loops you need to incorporate into your business and understand how they evolve as you grow.
 

The empathy loop

When you are starting out, the first feedback loop you can introduce is talking to people, in order to build empathy with your customers. Becoming proficient at asking meaningful and open questions to potential customers and partners will help you understand the real needs you should aim to satisfy and the players in the space.

Try using competitor products to build up a feeling of how your customers solve their problems with current solutions. It sounds obvious, but it is easy to avoid doing when you are convinced that your idea alone is going to change the world. However, this will help you know what the right problems are to solve and will improve your chances of your first product solution being a good one.

As you start to build your product you can keep the loop moving fast by using prototypes to get rapid feedback. Design sprints are one of the processes we recommend to do this in a structured and time boxed fashion (see this article on running an effective sprint)

As you move from prototypes to a real live product, you can keep the empathy loop flowing by launching quickly with a lean product, augmented with some manual effort. I meet many founders who are convinced they have to build a lot of product before they can start. I have rarely seen it work out well. There is always a leaner way to get rapid feedback. Deliver value quickly and build a feedback loop with these customers to help you adapt the product to their real needs.

Your feedback loop at this point should include phone calls, emails asking for feedback, online chat, in person or remote user testing and capturing NPS scores.

As your startup grows, you, as the founder, will start to hire others and it is critical that as many people in the company can be in this empathy loop. Developers should do customer service. Customer service should be feeding back into the product development. You should ensure that your key hires understand the importance of this so that the loop gets stronger as you grow. I see founders pay lip service in the beginning and then once growth kicks in they stop getting feedback from their customers. They often hit a wall that is avoidable if the feedback was in place.
 

The data loop

When you are starting out, the empathy loop is the key to driving decisions. You won't have enough quantitative data to help in product decisions. This means a conversation with five people will have to be adequate in deciding product direction. It’s not statistically significant, but if there are obvious flaws in what you are doing, those five people will let you know. This qualitative feedback, coupled with your product vision and your gut feeling is enough to progress.

Once your product launches, you must capture data that can start feeding back into the decision-making process. We use tools like Segment to funnel that data into free and paid analytics packages. We regularly use Google Analytics, Mixpanel and Intercom.

Post-launch and as you start to iterate on the product, the data loop will give you insight into areas where customers are struggling or where the product is working well.  For example, there is an unusual drop in a step of your conversion funnel, or you notice that a cohort of users is more engaged than the average. This type of data will inform the empathy loop into finding out why that is and you allow you to adapt the product and service.

At a larger scale, you will also run A/B tests to test out different hypotheses and prove that the changes you are making are having a positive effect. The data layer is crucial for you to be able to do this.
 

The organisation loop

Your internal organisation must also have a feedback loop. Growth forces your company to change.  Without a feedback loop, you won't have the information to adapt quickly enough, leading to unnecessary crises.  

Feedback loops within a company have multiple rhythms operating at different timescales. Daily team standups, weekly or bi-weekly sprints, weekly experiments and product roadmap reviews, monthly targets and quarterly initiatives.

Conduct regular retrospectives on how everything is going and when key projects launch. Retrospectives allow everyone to reflect on what is or isn't working and then make changes.

These retrospectives and rhythms allow the organisation itself to adapt and change and keeps you in that beautiful region between chaos and order.
 

Energy

Startups require energy to move forward. Energy initially comes from you as the founder. You put energy in, and things start to happen. You take time out, and things will slow down. There is no-one else you can rely on in the beginning to create that energy but yourself, which is why it is also important to look after your health and mental state. You need to be the source of energy and burning out isn’t going to achieve that.

When building your team, make sure that each hire puts in more energy than they take away. When interviewing candidates, you should focus on how you feel straight afterwards. Did you feel more enthused and excited than when you started? If you did, then it’s a good sign. If you feel drained, then you might want to think hard about that hire.
 

Systems

One of the things we help founders to do is to think about product and growth as a system rather than just building something or a bunch of tactics.

Launching early and using feedback loops are vital parts of the product and growth systems. The other parts include having a clear way to regularly prioritise new features and growth initiatives by ordering them by impact and effort.

As a founder you can minimise your risks by understanding these systems and enabling your organisation to work in this way. The Path Forward articles cover our thoughts on how this system can work (Brian Balfour and Andrew Chen also talk about growth systems). Of course, these systems don’t guarantee success, but they will help you find better product solutions and right growth channels for your business.

 

Software and adaptation

Lastly, I wanted to cover the technology aspect of your startup. If the product needs to adapt based on feedback, then it is critical that making changes is easy. It is easier to build a product that never changes and a lot harder to create a product that does. That is why you need to have engineers that understand how to do this well. It is also why it is advisable to have your technical team as part of your company and not outsourced.

Great engineers will understand when to spend effort keeping the system adaptable and when it’s ok to add new features. They will know what changes are easy and more difficult. The closer they are to you and the customer the better the feedback loop and the ability to adapt.

 

Are you there yet?

Hopefully, this guide convinces you of the merit of building in these different feedback loops, why you need a system and why that slightly chaotic feeling is something to be cherished!
 

Further reading

Design Sprints - http://www.gv.com/sprint/

Edge of Chaos - http://complexitylabs.io/edge-of-chaos/

Growth Systems - https://startuprunner.com/traction-bullseye-framework/

Mental Health - https://medium.com/startup-grind/entrepreneurship-and-mental-health-2e32834bc3b6















 

Dharmesh Raithatha

Product Partner @ Forward Partners

Dharmesh is Product Partner at Forward Partners and helps founders the've backed go from ideas to a great products and businesses. He has a passion for User Research, Lean UX and using data to inform decision making. Dharmesh has a background in artificial intelligence and has been doing product for over 12 years in his own or other high profile startups.

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