Mark Williamson, CTO of Hanzo Archives, on Validating Startup Ideas

Written by Sean Murphy. Posted in 3 Early Customer Stage, Customer Development, Founder Story, skmurphy

Mark Hanzo, CTO of Hanzo Archives, was interviewed by SimpleWeb as part of a series on validating startup ideas. I found his remarks on very practical and insightful and have added some observations of my own.

Mark Williamson on Validating Startup Ideas

Mark Williamson, Co-Founder & CTO of Hanzo Archives, offers a number of practical insights on what the search for early customers and early revenue feels like inside a startup.  He stresses the importance of making genuine offers and asking prospects for payment to assess their real needs, to keep your costs low as you are pulled forward by customer feedback, and to resist the temptation to let a large customer who is an early adopter push you to customize the product to the point you are doing custom development instead of product development.

Customer Development is Discovery Driven Sales

“When you start a business, unless you can hand on heart say “I am exactly the same as my typical customer”, then there is a gap between you and your potential customers… The trick of course is to narrow that gap as quickly as possible. You want to do this by talking as much as possible to potential customers by engaging in sales activity. Just talking to customers without it being part of sales activity can be helpful in some circumstances, but the reality is that customers tell you one thing when there is money at stake and another when they are just trying to be helpful.”
Mark Williamson in “How These Entrepreneurs Validated Their Startup Ideas

Unless you are making genuine offers you cannot determine customer’s real preferences and if you have a compelling value proposition. There is a world of difference between a prospect telling you they would pay and actually having them pay. If you ask prospects what they  think of a product idea or product concept, most will default to encouragement. If you ask them to pay for it, you trigger more rigorous scrutiny. But the founders must be involved in the sales process, if they delegate customer development to a sales team that is used to working with an well understood product with a proven value proposition at least two things can go wrong quickly:

  1. They have a strong temptation to move into “objection handling” instead of “problem/need discovery” because those skills are what normally close deals when they are selling a product with a proven value proposition.
  2. Customer discovery is sales, but it requires the discovery skills that can atrophy in a sales force that does not require them for a well understood product  in an existing market.

Customer development is discovery driven sales but many technical founders don’t associate it with sales because they consider sales to be about “making the pitch” and “ABC – always be closing,” not realizing that you also  “sell with your ears” by “ABCD – always be collecting data.”

Low Cost Exploration

“At Hanzo, we have taken what is a fairly typical approach: Do as little as possible to see what the market thinks about it, by seeing what people are prepared to give you money for. You will hear this called “Minimum Viable Product” often. The trick is to do the least amount of work to see if it sells.

“Don’t fall into the trap of what I would call “Build it and they come”. Over the years I’ve seen a few people invest large amounts of time and money to build fully featured, all singing, all dancing products only to discover when they finally open the doors that it isn’t what customers need.”
Mark Williamson in “How These Entrepreneurs Validated Their Startup Ideas

I think the trick is to focus on the key gaps that are holding early sales back. It’s good to have a strong vision and a product roadmap, but it’s important to focus on what deficiencies, if any, are holding back the sale.

But Won’t this Enable Competitors to Scale Faster?

“Of course there are disadvantages to this approach: if it does catch the market’s attention then you will be scrambling to catch up. But by the same token you are building with the advantage of having real customers telling you what their real requirements are. It’s also not quite as daunting as it may seem in advance. For example our billing around our On Demand service is still not quite right and customers grumble a little BUT they like the service so much they are prepared to put up with it for the time being.”
Mark Williamson in “How These Entrepreneurs Validated Their Startup Ideas

The status quo is your most serious competition, and determining what’s needed to obsolete it is your first and most important task in validating startup ideas. Success always brings pressure and new demands. But it takes real use in production for a customer to determine their real needs.  Even when early adopters are willing to overlook or workaround shortcomings in your product, pragmatic and conservative buyers will keep you busy finishing the product. Even if competitors “copy” your early product, unless they can also get customer feedback on how to improve it you will still be ahead of them, provided you continue to learn from your customer’s experiences and insights.

Don’t Let An Early Customer Turn You Into a Custom Software Shop

“Its worth noting that there is another trap here for the unwary: The single customer that ends up customizing your entire product for their esoteric needs that are not the requirements of a broader customer base. Most entrepreneurs will recognize this, an early customer with lots of money promising to give you a lot of business. The trick here is not to become an outsourced development department for that customer but to keep on growing and keep on talking to new potential customers. ”
Mark Williamson in “How These Entrepreneurs Validated Their Startup Ideas

The Coca Cola company was an early customer of Hanzo’s with an application need that was a little different from their current product focus. I suspect there was a lot of internal discussion around how much effort should be devoted to keeping Coca Cola happy and how much effort should be investing in pursuing other opportunities. It’s a hard problem because the large company will say, “We have all these requirements–many of which you have yet to satisfy,” and you can become fearful of approaching other prospects because your current major customer is telling you your product is not ready for prime time. But if you do talk to other prospects you may learn that your current product is a viable solution.

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