Without A Revenue Hypothesis Your Business Model Is a List of User Activities

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, Customer Development

Q: I am building an app that helps people build nearby interest groups (e.g. local model railroaders, quilters in your town, etc…). I am trying to establish a baseline for my value hypothesis testing and am considering the following metrics:

  • Registration rate of those who come to landing page
  • Rate of registered users who join or create an interest group
  • Rate of interest group members who interact (post etc) in a group
  • Rate of interest group members who log in again after a month

Even if I estimate the each of these rates at 50% I cannot tell what this would mean in terms of validating my business. Also I cannot determine how to use these metrics to determine the features to put in my MVP.

Any advice for where to start in a minimum set of metrics and features for an MVP for this service?

A: For the sake of an initial model let’s accept your estimate of a 50% rate for those four metrics. There are two key sets of hypotheses that you are missing:

  1. What are your hypotheses for how you generate revenue? What will your customers pay for and why? 
  2. What are your hypotheses for the cost of acquiring and servicing a paying customer? How much will it cost to get them to the landing page and to maintain the service?

Your answers to these two sets of hypotheses interact to tell you how long you can stay in business.

Q: Those are great questions but I feel like they are related to growth, something I think I should explore once I have figured out the value testing.

A: Getting paid is proof of your value hypothesis. You need to map your path to revenue. Once you can do that then planning how to do it in a repeatable scalable way is your growth hypothesis. Given that you are zero revenue you need to grow to at least break even to keep running experiments.

Q: OK I understand the importance of the monetization strategy in the hypothesis testing, but I don’t think it’s relevant to my original question. Suppose I added a another metric:

  • Rate of interest group members who convert to a premium account (e.g. for unlimited messaging)

And I assume it costs me $1 to get new visitors to my landing page. So now I have six hypotheses:

  • It costs $1 to get a visitor to the landing page
  • 50% of visitors register
  • 50% of registered users join or create an interest group.
  • 50% of interest group members interact in a group.
  • 50% of interactive group members login after a month.
  • 50% of persistent interactive group members upgrade to a premium account

What does that tell me? I still cannot tell if I have a  good starting point.

A: I think it makes all of the difference in the world, now you are optimizing for revenue in your experiments. The others are all vanity metrics if you don’t have hypotheses for their relationship to revenue and impact on cost.

You can enter whatever you think your conversions will be a priori, and now you can construct a hypothetical business that is profitable.

Without that you don’t have a (profitable) hypothetical business, you have a list of activities that users are engaging in.

Discovery Kanban Helps You Manage Risks and Options In Your Product Roadmap

Written by Sean Murphy. Posted in Customer Development, Lean Startup, skmurphy, Tools for Startups

I came across this presentation from LLKD13 (#LLKD13  / storify) by Patrick Steyaert (@PatrickSteyaert) of Okaloa on Discovery Kanban after following some links off a Kanban discussion group last year:

Slides

Video

It’s a complex and challenging presentation that connects a number of different concepts–including fitness landscape models, the Cynefin framework  and its concept of probes, the OODA loop, optionality–into a coherent synthesis: Kanban models can be used not only for managing execution or delivery flow by minimizing the amount of work in progress, but also for managing the discovery process of curating a portfolio of risks and options.

At a high level an execution focus yields a prioritized network of interdependent tasks; exploration yields a portfolio of risks and options.

I had the good fortune to meet Arlette Vercammen of Okaloa a the Lean Startup Conference 2013 and we had a conversation that has sparked an ongoing collaboration around helping Okaloa evolve their Discovery Kanban model both for startups and change agents in larger firms.

Patrick will be providing an updated version of the presentation June 16 in Leuven, Belgium:  ”More Agility and Predictability with Visual Management and Kanban.”

Related blog posts and articles

Plant Acorns With A Customer Development Interview

Written by Sean Murphy. Posted in Customer Development, skmurphy

A customer development interview should be treated as a conversation that may enable a future business relationship. The best outcome for an initial interview is that you can summarize what you have heard about their needs and constraints on possible solutions and they are interested in another conversation or can recommend others to talk to.

Here are some related blog posts on customer interviews and discovery conversations:

 

Lean Startup Conference 2013 Roundup

Written by Sean Murphy. Posted in Customer Development, Events, skmurphy

Update Thu-Jan-23: more articles and blog posts are coming out so I will continue to update this for another month or so, I am also adding a section for the workshops as many presenters are publishing their slides.

This post curates content and commentary related to the 2013 Lean Startup Conference: videos, blog posts, slides, articles, etc.. I will continue to update it until about mid-February 2014 as videos, slide decks, blog posts and articles related to the 2013 Lean Startup Conference are published. If I have overlooked a post or other content you found useful or insightful please leave a comment or contact me. Here are my roundups for the last three years of Lean Startup Conferences:


Main Program Mon-Dec-9-2013

State Of The Lean Startup

When Lean Startup Arrives in a Trojan Horse–Innovation in Extreme Bureaucracy

Experimenting on Experiments–Bringing Lean Startup to Scientific Research

Using Lean Startup to Do Plenty with Very Little

How You Can Start the Next Zipcar

An Interview with Matt Mullenweg

What Works in Silicon Valley Doesn’t Work Everywhere–Why Localizing Lean Startup Strategies Is Critical for Your Community

Build a New Product, Infect a Whole Organization

Toyota: From Lean Manufacturing to Lean Startup

Jazz Engineering

Risk, Information, Time and Money (in 20 Minutes)

Interview With Reid Hoffman

Jazz Engineering–the Deep Dive

How Two Startups Used a Google Doc to Plan Their User Interface

Rapid Iteration for Mobile App Design

Make More Meritocratic Decisions

Beyond Landing Pages: Five Ways to Find Out if Your Idea Is Stupid

Running a Successful Innovation Center at a Fortune 50 Company

Engaging Your Team in Continuous Improvement

Evolving and Growing with Lean Startup

Overcoming Biases to Make Better Decisions

 How Validation and Vision Co-exist

Institutionalizing Innovation

Keep Your Executives Close to Your Customers

The Biggest Implementation of Lean Startup on Earth

Main Program Tue-Dec-10-2013

Acquiring Your First Users Out of Thin Air

How to Build the Product When You’re Not the User–and You Don’t Even Know Anybody Who’s the User

Building a Technology Company with No Engineers

Funding for Lean Impact

Preparing for Catastrophic Success

Evidence-based Entrepreneurship

Using Kickstarter to Run an MVP

Learning to Be an Organization that Pivots

Continuous Change at Scale

Lean Startup–From Toyota City to Fremont to You

The Medium Is the Message

Lean Leadership Lessons

Integrating Development, Design and Product Management to Deliver Great Products

Frame Before You Build, Measure, Learn

Seriously Advanced A/B Testing

Alleviating Poverty One Iteration at a Time

The Big Ideas Behind Lean Product Development

Getting Customer Feedback When Your Product Doesn’t Live on the Web

Working Closely With Customers on the Other Side of the Earth

Jump-starting Product Strategy in a Startup

Transitioning Teams to Lean

Lean Startup in a Regulated Environment

Crossing the Concierge Chasm

Using Lean Startup Principles to Close the Digital Divide

Cultivating Lean Startup Teams When People Don’t Know What It Is (or Are Hostile to It)

Can Lean Startup Advocates and Grizzled Veterans Work Together?

An Interview with Marc Andreessen and Chris Dixon

Workshops Wed-Dec-11-2013

Lean Analytics for Intrapreneurs

Other Roundups and Commentary

If I have overlooked a post or other content you found useful or insightful please leave a comment or contact me.

 

MVP Clinic for Social/Community Apps Wed-Oct-23

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, 3 Early Customer Stage, Customer Development, Events, skmurphy

If you are planning a new service offering, involving technologies and social interactions between customers, this clinic on minimum viable service can help you learn your way out of conflicting assumptions, lack of relevant data, difficulty understanding service value, and resource constraints. This is especially the case if you need to get adoption by a newly forming or an existing community, that may be contained within one firm or span many.  Drawing on their experience in new product introduction and communities of practice, Sean Murphy of SKMurphy and John David Smith of Learning Alliances, will demonstrate the value of a “walking around the problem” technique for early service design that they have developed individually and together over many years.
Webinar: Minimum Viable Product Clinic for Social or Community Applications

Our two panelists:

  • Dixie Griffin Good is director of Shambhala Online, a global learning community connected by the meditation teachings of Sakyong Mipham Rinpoche. For 15 years she consulted with local, state and national education organizations on the educational use of technology. She has a masters in Future Studies and enjoys managing and studying change processes.
  • Terry Frazier is Principal and Senior Competitive Analyst at Cognovis Group. He has been studying, writing about and consulting on competitive and industry issues since 1998 and his work has been used by both Fortune 1000 businesses and international analyst firms. Today he writes at CompetitiveThinking.com.

Each panelist will outline a significant growth challenge related to the social/community aspect of a new offering, describe hypotheses they plan to test, and explain how they will assess the impact.

John and I will ask clarifying questions about the learning happening in target market/ community of interest and suggest experiments / probes. The audience is also welcome to take part in asking questions or making suggestions.

8 Tips For Interviewing Experts

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, 3 Early Customer Stage, Customer Development, Rules of Thumb

As a part of our efforts developing KnowledgeFlow Michael Domanski and I have interviewed a number of experts. We collaborated on this blog post, originally published October 2 on April Allen’s KnowledgeBird blog as “How to interview your experts.”


What’s the most unnerving thought when interviewing a high profile expert?

Just imagine how depressed you would be after securing an interview with a subject matter expert and then conducting an interview that is a mix of stuttering and banal questions. I had tons of angst myself when I started conducting interviews. It’s not easy to interview an expert, mainly because of the depth of their knowledge. It gets even harder when you realize just how precious their time is. To make my experience even more stressful, I knew at some point some of those people may become my customers. Thus, I not only needed information, I also needed to make it look as if I knew what I was doing.

Since there’s little information (very little) about this subject on the Internet, I decided it would be a good thing to share some lessons learned. Let’s jump in.

8 tips to guide you through interviewing your experts

  1. Research the subject matter and people you want to contact: your interview always should have a main subject. E.g. if you were to talk to a SEO expert on the matter of recent changes to Google algorithms, research as much as possible on your own. This background will enable you to ask questions that are informing to your readers and provide new or niche insight into the subject. Pay attention to the background of the person you interview. Ideally you want to have a list of people to interview that you have almost personal relation to.
  2. Rules of engagement: I usually contact people via email. But most experts get a ton of email every day. At this stage you should understand them well enough to write an email that will interest them enough to contact you back. If you don’t think you can write a good email, read “Writing That Works” by Kenneth Roman (make sure it’s the 3rd edition). Write a personal email: for example, when I wrote to Adii Pienaar from WooThemes, I’ve included a small personal hook, which got a brief discussion over email and a comment: “Nice email, got my attention.”
  3. Draft an interview agenda: you know the subject, you know the person you’re going to interview. Now, with your target length of time for the interview in mind, draft an agenda of the key items that you want to discuss. I usually write it and then review it with my co-interviewer. We discuss it and then send it to the interviewee in advance so that they can prepare. My advice is to always have someone have a look at it.
  4. Have a co-interviewer: there are several the benefits to having a second interviewer.
    • Fluidity: if you are out of questions for the moment he can take it from there.
    • Notes: I added tip on taking notes and having help makes it much easier. One of you asks the questions, one analyzes the answers and takes notes.
    • Brief and debrief:  you can discuss the agenda and discuss what you have learned.
  5. Prepare the environment: there are two types of settings for an interview.
    • In person: has the obvious benefit of you seeing the person you’re talking to. This gives you more clues about the feelings someone can have about the subject. On the other hand, those types of interviews are expensive. They require you to secure a proper space and time to get there. You should never do an interview in a space not private enough. I personally don’t believe in ”coffee shop” interviews. The list of distractions in such places is very long and you want the undivided attention of the person you’re asking questions.
    • Remote: Skype and gotomeeting are two most used tools for this kind of interviews. While the interview can be much harder, you can only hear the other person and see facial expressions or body language, it has some logistic advantages. The whole setup is dirt cheap and the time spent on getting there is exactly 0 seconds. It’s also very useful when interviewing people over long distances.
  6. Take notes: capture key words and phrases that your interviewee uses and pay attention to any term they repeat. Try to write down things as they’re being said. You can draw your conclusions later. This is easier if you work with a partner. That way, you won’t have to worry about losing the thread of conversation (believe me, it’s hard to take good notes and follow the conversation at the same time, pay attention to how a good lecturer structures their presentations).
  7. Keep it on course: if you said the interview is going to take 30 minutes, be ready to end a few minutes before. A good guide is the subject’s energy and engagement. If they seem happy, you can go over the promised time. If they’re showing fatigue, try to wrap soon. It’s important to avoid data overload. If you ask too many questions, it can be hard to process them coherently. Having a planned agenda, with some questions and a general thread of thought will help you a lot.
  8. Summarize: in case you got something wrong, at the end of the interview be ready to show or read a short summary to your subject. While this is not as good as a thought-out follow up, it gives you the confidence, that at a high level, you have the same view of the problem as the expert you’re interviewing. This is the end of the interview, but this is not the end for you and your partner. After the interview you debrief on the situation, what you have learned and what you think is important to take note of. I also try to mention any conclusions that seem obvious to me and that I drew based on the interview.

After the debrief I work on the formal summary of the interview. This may seem like a lot of work (and it is) but it’s key:

  • It enables you to confirm your conclusions with the expert.
  • It makes you think hard to create a coherent picture and wrap it into words.

Personally, I believe this is a step you should never omit. Even if you eventually end up not using what you have learned, you will have a good notion of why it’s not useful. You will also be able to follow up with your subject and, if you collaborate on it with your partner, you’ll be confident you haven’t overlooked obviously important information. Fear of missing important information or the nuance of an insight are two reasons why I always email the summary to the interviewee. Most experts are used to not being understood completely right away. Because of that, most of them will read and correct what you got wrong. This is very similar to taking an exam and submitting your answer. It’s crucial to perform this step, since you are going to base your action, or lack of it, on the conclusions you deduced from the interview.


See also

Preserving Trust And Demonstrating Expertise Unlocks Demanding Niche Markets

Written by Sean Murphy. Posted in 3 Early Customer Stage, Customer Development, Rules of Thumb

Q: We are preparing to enter a B2B  market where the potential buyers are high-value but relatively few in number and close-knit. I am concerned that they will have a low tolerance for a minimum viable product (MVP) approach; much less pre-MVP research that misses the mark. How do we preserve our credibility but take a scientific approach?

We work primarily with bootstrappers who have deep domain knowledge, typically a team of 2-5 engineers, scientists, or other experts. Our focus is on B2B markets with a hundred to a few thousand thousand firms. If you are solving a hard enough problem or just talking about a need that’s a real pain point they are more than willing to have a conversation and consider an your MVP.  Here are a few rules of thumb for preserving your social capital in B2B niche markets:

  • Actively Manage Expectations With Clear Communications
  • Always Assume Everything You Do Will Become Public
  • Listen For What Isn’t Being Said
  • Predictable Behavior Inspires Trust
  • Trust Doesn’t Scale, It’s Knit by Aligning Actions With Prior Commitments

One example of a product we are helping a team launch is BeamWise, a design and simulation too for biophotonic systems that may have a total market of a 250-500 organizations that might purchase it.

I like these markets because they often have an expertise barrier that makes them harder to penetrate. If you act in a trustworthy manner, are easy to do business with, and deliver value these customers tend to be loyal–they don’t treat your offering like a commodity but look at you more as a partner than a supplier.

These niche B2B markets require more discipline that consumer markets. You have to approach each customer in a way that you preserve your ability to do business with them: you cannot do anything that communicates a lack of respect or indicates you are merely using them as an experimental subject or “target practice.” People in these markets know each other, reference each other’s purchase decisions, and a poor reputation can travel faster than your ability to message.

This does not mean that your product has to be perfect, only that you are committed to acting with integrity and providing value. Seth Godin had a great blog post on “A Hierarchy of Failure”  that’s relevant to your market exploration and MVP strategies. Here is his hierarchy:

  • FAIL OFTEN: Ideas that challenge the status quo. Proposals. Brainstorms. Concepts that open doors.
  • FAIL FREQUENTLY: Prototypes. Spreadsheets. Sample ads and copy.
  • FAIL OCCASIONALLY: Working mockups. Playtesting sessions. Board meetings.
  • FAIL RARELY: Interactions with small groups of actual users and customers.
  • FAIL NEVER: Keeping promises to your constituents.

I think he gets it exactly correct. And I think a number of entrepreneurs, in particular in the early market, get it almost exactly backward by

  • Putting up a landing page that promises a capability or extra feature that doesn’t exist.
  • Focusing more on a potential solution when talking with prospects–using them to prototype– instead of ensuring that they really understand the prospect’s perspective on the problem.
  • Looking for funding before they look for customers, using investor interest as validation for their business concept.

Godin concludes:

Most organizations do precisely the opposite…They rarely take the pro-active steps necessary to fail quietly, and often, in private, in advance, when there’s still time to make things better.

Better to have a difficult conversation now than a failed customer interaction later.

The foundation of a successful business is the ability to make and meet commitments to customers, partners, employees, suppliers, and other stakeholders.  If you inform them in advance, “we are going to try the following experiment” they may or may not take part, but  they can offer informed consent. I see too many instances where founders undervalue a relationship with a customer based on mutual trust and commitment.


Here are some related posts on managing trust and expertise:

MVP: What’s Really Under Your Control

Written by Theresa Shafer. Posted in 3 Early Customer Stage, Community of Practice, Customer Development, Lean Startup, Workshop

An MVP is an offering for sale

We use this definition in our “Engineering Your Sales” and “Validating Your MVP” workshops and our MVP clinics. Our focus is on developing and selling products to businesses so that biases the definition a little bit but it’s important to remember what’s under your control in crafting your MVP:

  1. The particular type of customer: you can select who are you targeting and messaging. In many B2B markets the best message is a dog whistle: highly appealing to your target and of little interest to those who are not.
  2. The specific problem or need your focus on: it’s better to pick a very narrow pain point initially so that you maximize your chances of providing value.
  3. What you provide: the feature set and packaging of your offering.

These are normally the three areas that you tinker with during marketing exploration and MVP introduction. It’s also important to understand what’s not under your control: 

  1. The customer decides if the need is important enough, or the problem severe enough, to devote any time to conversation or learning more about your offering.
  2. The customer decides if your solution offers enough of a difference over the status quo and other alternatives available to them to actively consider. Value is in the customer’s mind and it’s created in the customer’s business when they successfully deploy your offering. Your MVP is not valuable in the abstract; it must always be evaluated in the context of a particular customer. It does not matter how much time and expense you have invested in creating it, it’s the effect it will have on the customer’s business.
  3. The customer decides the nature and size of the initial purchase. You can decide not to pursue an opportunity that is “too small” but if the customer wants to pilot in a team or one department before deploying your solution more widely it’s often better to take that deal and get started than continue to argue for a larger initial deal. Breaking your offering into phases and smaller components will always make it easier to digest.

The following chalk talk illustrates this last point in more detail:

See “Chalk Talk on Technology Adoption” for a transcript.

Customer Discovery Conversations While Driving Are Not a Good Idea

Written by Sean Murphy. Posted in Customer Development

Q: I want to make maximum effective use of my time. I have an hour of commute most days and have been listening to podcasts but I have been considering using the time to make customer discovery or sales calls. Do you have an recommendations on the best way to do this?

I think it’s a not a good idea to initiate a customer discovery conversation when you cannot be fully present and cannot take notes. That does not mean that you have to be face to face (although you learn a lot more from a face to face conversation) but I think it’s difficult to catch the nuance of the conversation when you are driving–even it you are just waiting for the light to change.

If you have a purely informational message and are looking for a simple yes/no/number answer (e.g. calling your spouse to ask if you need to pick up anything at the store on the way home) then a quick call saves everyone time and disappointment. But I can see this calling while driving approach going awry quickly if you get a new question from a prospect that you cannot give your attention to because someone is trying to change lanes in front of you or a pedestrian may or may be about to step off the curb or there may be a child chasing that ball that bounced across the road two seconds ago.

In my experience B2B sales conversations are expensive to arrange and difficult to “do over” if you don’t fully engage. You often hear about how it’s a numbers game but most markets are small towns where there are not that many folks you can call at a given time that are ripe for making a change. It can be difficult to recover from a poor first impression; if you follow up when they are considering making a change.

For any successful and most educational–and by educational I mean “those things which hurt also teach”–discovery calls I am taking notes contemporaneously. I understand how a headset can make the conversation hands free but how do you take notes about important issues, questions, or commitments that you need to address in a follow up?

Seth Godin offered this advice in “Texting While Working

You’re competing against people in a state of flow, people who are truly committed, people who care deeply about the outcome. You can’t merely wing it and expect to keep up with them. Setting aside all the safety valves and pleasant distractions is the first way to send yourself the message that you’re playing for keeps

If you are competing against a team that’s not making calls while they are driving, who is more likely to learn something and to win the business?

If someone I am already doing business with calls with a quick update while driving that’s one kind of communication, but if someone I don’t know is clearly calling from a car or appears distracted or disinterested (whether or not I can tell they are driving) it’s much less likely I am going to go forward to explore a potential business relationship.

Don’t fall into a common trap of an  entrepreneurs focusing on trying to save time at trust building activities and not focusing on increasing their chance for success. Even though sales can be a “numbers game” thinking about it purely in those terms tends to minimize the amount of learning that takes place (trying the same tactics and approaches over and over again because everyone knows its a “numbers game”) and lessens the focus on building rapport and listening carefully to questions and objections (looking instead for “smarter prospects” by talking to more people because its a “numbers game”).”

The paradox of B2B selling is that it’s about people and relationships, not numbers. People think of consumer markets as more personal than business, but it’s the reverse. If you cannot make the time for a phone call when you are at your desk or somewhere that you can be fully present in the conversation, calling prospects from your car is unlikely to be well received.


We explored the implications of “Texting While Working” in a panel discussion with three entrepreneurs

Also “Talking On Your Cell Phone While Driving May Be Hazardous to Your Close Relationships” offers some additional reasons why a cell phone conversation while driving may work against improving trust in a relationship. Summaries available at

Use E-Mail Like a Walkie-Talkie, Not A Bullhorn

Written by Sean Murphy. Posted in Consulting Business, Customer Development, skmurphy

I don’t think it’s a new trend but one new service that I recently signed up for asked me to take a short survey about how I felt about their product and what I planned to do. They E-Mailed it from a “no-reply” email address and I realized that an answer I had stuffed into the “Any Other Comments” box would make for a good short blog post.

Please don’t e-mail me from a “no-reply” address: if you don’t want a real conversation, or even an e-mail exchange, I don’t have the sense you are interested in a business relationship. If you only want me to answer your multiple choice survey questions and are not interested in my questions I think you are limiting how much you can learn from a real interaction.

While the 2 minute explainer video is helpful what I would find more useful–and what’s missing from your site–are real examples: please offer more examples of example configurations and more customer stories about how they used your product to change their business. Since I am a consultant I would find stories from other consultants particularly helpful.

You have sent me a number of reminders and updates in the last three weeks, included this latest that links to an automated survey. But none of them come from a named person or an e-mail address that can be replied to. While I can appreciate this is very efficient for you it may not be having the effect you are hoping for.

Your approach reminds me of when I was a child playing with walkie-talkies and someone in the group would keep their thumb on the transmit switch the entire time they held the handset. Although the rest of us got a running account of what he thought and was doing, there was no way to have a conversation.


Update Aug-8-2013: Brad Pierce (@learningloving) e-mailed a response this morning:

Hi Sean,
See “We’re Terrible Listeners — And Here’s Why” by Susan de la Vergne; her conclusion: “Why don’t we listen well? The person we’re listening to isn’t important. Change that perspective, and you fix the problem.”

And the corollary is true, when you don’t listen, or worse remove the possibility for listening, you communicate to the other person that they are not important. Here are the last three paragraphs from We’re Terrible Listeners — And Here’s Why by Susan de la Vergne

In technology, when we find a problem with a product, we pursue its root cause. What’s really making this happen? Then we fix the root cause. We know we could just tinker with things so the symptoms stop appearing, but without getting at what’s really wrong, it’s only a matter of time before the problem shows up again.

Same thing applies here. When we’re trying to listen, we could count to seven before speaking or remind ourselves not to interrupt, but those are just symptoms. Becoming a better listener requires taking a deeper dive into the problem. We need to get at the root cause.

Why don’t we listen well? The person we’re listening to isn’t important. Change that perspective, and you fix the problem.

Even For Demanding Markets, An MVP That’s a 70% Solution is Often Good Enough

Written by Sean Murphy. Posted in Customer Development, skmurphy

Today’s “Murphy’s Law” column (no relation) “Save The 70 Percent Solution“ offers some lessons learned from combat for startups in considering how to craft and introduce and MVP into demanding markets.

July 23, 2013: When wars end there is a search for lessons. One of the most important lessons from Iraq and Afghanistan is that the same lessons tend to be relearned in war after war. Perhaps the most important lesson learned this time around was that a lot (usually most) wisdom and innovations begins at the bottom, not at the top. In Iraq and Afghanistan the military, especially the army, was quick to take advice from the troops actually doing the fighting. That was recognized even before Iraq and led to the RFI (Rapid Fielding Initiative). Established in 2002, RFI recognized that the American army did not always have the best weapons and equipment available and that the troops and low-level commanders had a better idea of what was needed than the senior generals and politicians. RFI was intended to do something about that and do it quickly.

Instead of always trying to “go to the top” it’s often better to look for an individual knowledge worker or first level manager who has a problem you can address.

During the next nine years the army approved the purchase of 409 items immediately, which is what RFI was all about. Last year the army began deciding which of these RFI items to make standard equipment (about a quarter of them) and which to discard (the rest, although many were obsolete and improved replacements were being sought). The marines went through this process and found that 63 percent of their RFI items were worth keeping, and only 17 percent were to be discarded. The rest are still being watched or being further developed.

These rates of failure are probably much better than the regular procurement process, especially when you factor in that the long acquisition times of ten to fifteen years leave older technology in the field longer.

Engineers often point out that they can deliver much more quickly if they are allowed to use the old “70 percent solution” rule. This bit of engineering wisdom is based on the fact that some capabilities of a weapon or other item are not essential but take an inordinate amount of effort to create. Thus a “good enough” item can be produced very quickly, if you are willing to sacrifice 30 percent of the capabilities you thought you needed (but probably don’t). Despite official opposition, the 70 percent solution has become all the rage over the last decade because the troops have found that this is frequently good enough and a real lifesaver in combat.

Even a 20% solution can address the core problem(s) that cause 80% of the pain.

You could see RFI coming. There were three existing trends pushing it. First, there was a lot more new technology coming on the market that troops could use. Some of it came from the companies that created equipment for the hiking and camping market (boots, rucksacks, all manner of outdoor clothing). Other stuff came from hunting and police suppliers (new gun sights and other accessories). There was a flood of new electronic gear, like lighter and more reliable GPS receivers and computer gear, plus new kinds of flashlights and, eventually, smart phones.

I think what’s called the “Consumerization of IT” is driven by the civilian version of these three trends. Consumer applications were easier to adopt and use than traditional IT solutions, especially for personal and small group productivity, and evolved more rapidly.

The second trend was that the troops were all on the Internet and, like never before, were in touch with each other via military related message boards, listservs, Facebook pages, and chat rooms. Troops have always been coming up with new ideas about how to use civilian gear for military purposes. But before the Internet each soldier’s discovery spread slowly. Now, information about new discoveries gets spread army-wide, and world-wide, within hours.

I think there is where the commercial sector has been less well served by trade press and startup blogs that tend to recycle funding and product announcements and do less to report real user experiences.

Finally, there was SOCOM (Special Operations Command), which had long possessed its own RFI-like powers and budget to go with it. SOCOM could buy neat new weapons, as well as equipment. SOCOM could also afford to buy expensive stuff (the first night vision gear and satellite phones). SOCOM personnel were on the Internet as well. By 2001, thousands of soldiers were speculating, via the Internet, how much more effective they could be if they had SOCOM’s freedom to quickly get new stuff that allowed them to do their job better.

I remember attending a talk on this at a Churchill Club event in the early 2000′s and someone at our table mentioned that you had to be very careful making promises to SOCOM because they would field immediately and ask you to support your claims. I think this is something that startups can lose sight off: early adopters are willing to invest time in a new technology because they can see long term but are normally looking for immediately application and a small payback. Y0ur offering has to provide a small amount of value quickly so that it can spread internally to provide more value.

Key take-aways for your first viable product:

  • Sell low not high.
  • Focus on the 20% of the problem that’s causing 80% of the pain.
  • Be wary of long feature requirement lists unless most of these are available in the status quo: an MVP normally needs one or two differentiating features but may need other features (“the ante”) just to be viewed as a viable product compared to alternatives.
  • Be candid about shortcomings and problems – let early adopters self-qualify.
  • Provide immediate value or some value as quickly as possible.

MVP: Are You Building a Death Star?

Written by Sean Murphy. Posted in 2 Open for Business Stage, 3 Early Customer Stage, Customer Development, Lean Startup, skmurphy

“Empires build Death Stars, rebels build X-Wing fighters.”


Update 22-July 2013

Here are some other good MVP blog posts

Here is a link to the Lego Death Star and the description I used.

Upcoming MVP Clinics in July and August for Startup Enterpreneurs

Written by Theresa Shafer. Posted in 3 Early Customer Stage, Customer Development, Events

Sean Murphy, CEO of SKMurphy Inc will be moderating two upcoming MVP Clinics. These are interactive roundtable discussions were entrepreneurs can present where they are with their MVP and hypotheses about customer, problem, solution, and value. The roundtable will explore issues that founders are having in defining and evaluating their MVP.

Format

  • Introductions each attendee describes briefly who they are, their startup, and the issues they want to discuss about their MVP.
  • Five minute briefing and a one page handout on MVP’s
  • We address the issues raised in a roundtable format, clustering them where possible and encouraging questions and suggestions from attendees.

The MVP Clinic facilitator is Sean Murphy, CEO of SKMurphy Inc. and  offers customer development services for technology entrepreneurs. SKMurphy’s focus is on early customers and early revenue for startups. Sean is an early and active member of the Lean Startup group and has been a workshop presenter and mentor at the Lean Startup Conference for the last three years.

Validating Your MVP For B2B Startups at SF Lean Startup Circle Tue-Jun-4

Written by Sean Murphy. Posted in 3 Early Customer Stage, Customer Development, Events, Lean Startup, Workshop

We have been invited back the SF Lean Startup Circle to present our “Validating Your MVP and Value Proposition for B2B Startups” workshop on June 4, starting 5:30pm. This interactive workshop will address:

  1. How a B2B startup should think about  message, MVP, and launch.
  2. Understand who buys your product and how they calculate its value and total cost.
  3. Where to find people to validate your MVP.
  4. Systematic approach to validating your MVP and your value proposition.
  5. How to track and measure your efforts.
  6. When to pivot.

When: June 4, 5:30-8:30
Where: Runway, 1355 Market Street, Suite 488, San Francisco, CA
Cost: $60 (or join the volunteer mailing list to get in free.)
Register:  Meetup.com/Lean-Startup-Circle/events/115783162/


Tristan Kromer‘s (@TriKro) vision for the SF Lean Startup Circle is  to offer a testbed for developing workshops for entrepreneurs. So with this iteration we are adding a new module where participants will build a LEGO representation of their business. We believe that this will offer a useful metaphor for analyzing a customer’s business and the value that your MVP offers.

Other LEGO related blog posts:

 

Learning the Right Lessons From Failure

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

John Finneran recently wrote a postmortem on a startup that aspired to be “the 37 Signals of non-profit software entitled “Fat startup: Learn the lessons of my failed Lean Startup.

It’s a candid narrative the ends with four “lessons learned”

First, pursue achingly high standards in every aspect of your startup. Mediocre execution will slowly murder your startup.

Second, narrow the scope of your product until you can develop an extraordinary product. The purpose of your first release (and every other release)  is to give your customer immediate value. You are not launching a series of science experiments for you to learn what you should already know.

Third, find enough funds for a substantial marketing budget.

Finally, beware of Lean Startup principles, or any other shrink-wrapped utopia offered by the entrepreneurial dream industry.  A weekend trip in a “Lean Startup Machine” may feel useful and fun, but treat their practical value with extreme skepticism.

I had a different set of lessons from this article than the conclusions that the author draws:

  • Your customer is the firm that will pay you. They picked a problem–writing a grant application that relies on a “logic model”–that may not be a real need. They interviewed 1,000 people seeking grants and found “writing a logic model is confusing, complicated, and impractical.” They don’t appear to have interviewed the organizations requiring the logic model to determine how it would be used beyond the grant application. If it’s only needed for a presentation then a PowerPoint version may be all that’s ever needed. I think there may be a deeper need to uncover in understanding why a logic model is required and how it’s updated over it’s lifetime. Conclusion: if you are going to create an on-line artifact to replace a powerpoint slide make sure it will be used more than once (e.g. needs to be updated quarterly to maintain grant, etc..). An alternative customer might have been to find grant writing consultants who wanted to become more productive.
  • Pick a problem or pain point that is real and preferably recurring. One way to tell that it’s real is that a prospect will find value even in a partial solution or offering that only addresses a portion of the full problem. This is the core of a minimum viable product: it provides enough value for a target customer’s real problem/need that they will make a minimum purchase. Instead “our original idea put on weight quickly” they expanded their initial concept to become the 37signals of non-profit software.
  • Most assumptions you make when you start out will prove to be imperfect and in need of refinement: plan for this. This is not a fault of any particular business model approach, it’s a function of your knowledge of the customer’s needs and buying process. One example from this situation: “We assumed customers would sign up online with a credit card.’ Most B2B software, at least for initial sales, will have to be sold with many conversations much hand holding. Lacking any testimonials or case studies, you will have to have a number of serious conversations with a prospect to ensure that you understand their needs and that they agree that you do.
  • Rehearse the demo an internal champion (“earlyvangelist”) is going to run using their exact configuration; do this with enough lead time that you can identify and fix any issues it uncovers. If your internal champion does not want to rehearse then they are not really an earlyvangelist.
  • Always consider starting out by selling the result that a customer wants as a service.  This is a startup that would have benefited from using the concierge model or partnering with a consulting firm already doing logic models. Their target customer wanted to pay for a logic model, they should have started by selling that result. It’s not clear if the customer would have used the application after submitting the grant so selling the result would have been a better place to start.

Hiring A Startup’s First Sales Person

Written by Sean Murphy. Posted in Customer Development, skmurphy

Gabriel Weinberg is a serial entrepreneur (latest startup: DuckDuckGo), an insightful blogger, and quality contributor to Hacker News. He is writing a book on how startups get traction due out this summer that includes interviews with folks like Patrick McKenzie, Jimmy Wales, and Paul English to collect lessons learned from a variety of perspectives. I was delighted when he approached me to take part and found it to be a very thought provoking conversation.

He has posted the full transcript on his blog at “Sean Murphy on the First Dozen Enterprise Customers” (with a related comment thread at http://news.ycombinator.com/item?id=1671852) here is a long excerpt devoted to hiring your first sales person.


yegg: At what point do you advise bringing in a sales person?

skmurphy: If you’ve made between a half a dozen to two dozen sales and  you’ve got a sales presentation that you know works.  If you’ve got a way to target prospects: you understand if they answer yes, no, or a number to these six questions, you know half the time they are likely to buy.  You don’t necessarily win half the time, but you’ve got a reasonable presumption you can create value for them.

Then you know you can fire a sales guy if it’s not working because the problem is him or her, it’s not your product or process.  What often happens is that the founders add a sales person before they can manage the sales process. They think somehow that guy is going to take his rolodex and solve all their problems.  They have to get–at least one member of the founding team has to get–good at understanding the customer negotiation process, and what’s going on there, so that if the salesperson is bullshitting them, they can call them on it.

This is nothing against sales people: they have a critical role to fulfill. Most successful sales people won’t come into a situation that’s too early because they can’t make that much money.  If the product doesn’t work well, if you can’t tell them “Go talk to people like this, look in your rolodex and find all the left-handed tuba players that used to live in Cleveland”, then they can’t make money, and they don’t like that.

yegg: For your typical engineering founding team, do you advise one of them to develop these skills, or go find another co-founder, or what?

skmurphy: Most of the time at least one of the folks is more outgoing and is willing to get out there and to take part in the process.  If everyone on the team believes that they can stay in the BatCave and use Google AdWords to make their money then they better have a product that matches that profile. It is typically not the products at the price points we are talking about, where we’re offering an annual license that costs of anywhere from a thousand to fifty thousand dollars a seat, where deal sizes are in the twenty-five thousand to quarter million dollar range.

There are other markets where the founders don’t have to as outgoing.  You had Patrick McKenzie on; his whole business model is B2C: he and I are on different planets.  That doesn’t mean that I am right and he is wrong or he is right and I am wrong.  We are just going after very different kinds of markets: I want to be very clear that I am talking about business-to-business software sales.

yegg: Is there a typical person on the side, e.g. title, that you are dealing with?

skmurphy: It’s typically a midlevel person who has got a real problem.  It may be a first-level manager, may be a senior contributor, it could be someone in the finance, it very much depends on the product.  When we help sell medical workflow products we call on very different people than when we help  sell legal services automation or computational chemistry tools.

But ordinarily, it’s somebody who is one level or two levels up in the organization; they’ve got enough perspective on the problem and on the organization to understand what’s going to be involved in bringing change to the organization.  As we work with them they may take us up the hierarchy to sell more senior folks.

We don’t tend to start at the top unless we are calling on a very small business in which case you’ve got to call on the CEO or one of the key execs because no one else can make any decisions.

yegg: Suppose you hire a salesperson. How do you approach that process–do you hire just one to start?

skmurphy: Yes, start with just one. And hire someone who wants to sell, not a sales manager who wants to hire sales people and manage them.

Sales guys are very expensive, but you have to realize that if they can’t make money then they can’t make money for you. They face a learning curve process on your product:  you’ve got to develop real sales training material, which is different from the customer material that you’ve already got developed.

You’ve got to be able to teach them how to sell your product.  Now, you don’t have to teach them how to sell–how to navigate a customer hierarchy or coordinate a sales process or orchestrate a sale.  You are not giving them sales training in the abstract, but you need to give them training on how to sell your product.

For example: what does it mean when the customer asks this question; what’s our standard pricing and discount structure, how can you disqualify a weak prospect so that you focus on strong prospects.

yegg: Do you typically advise one of the engineers to become a pre-sales engineer in this stage?

skmurphy: Ordinarily, they are going to have to.  We also go on sales calls, my partners and will also go on sales calls in Silicon Valley. And we will do “ride alongs” on webinars or telesales.  We can help with this. It’s less stressful to be sales engineer than the sales person. But both people are involved in the sale, they each have to be able to read the situation and improvise to assist the other.

The biggest challenge that a CTO or a technical person faces in that setting is because they’ve developed their product with a particular perspective, they will sometimes tell the customer, you know you are using my product wrong, stop doing that.  And, sometimes they’ll almost say those exact words.  And, the reality is many times the customers “misuse of the product” is actually where a bigger market is.  Maybe they are only using three of the seventeen features, but they are creating more value and you’ve got to be alert to that possibility.

yegg: The salesperson that you hire first–presumably you want them to have domain expertise. Are there other parameters that you are looking for as well?

skmurphy: In the markets we operate in we like them to understand what’s involved in an orchestrated sale.  The early sales are still going to remain complex; it’s not going to become a transaction for a while. So, you need somebody who has done that.  It may be someone that has ambitions to be a sales manager, or may have been a sales manager who was willing to take a step back for a year to be able to then help you build a team.

One other mistake we see folks make, not so much the bootstrappers because they just don’t have the money, but we’ll see teams with venture funding that’ll go hire, you know a VP of sales, two sales managers, four sales people.  They don’t have training materials; they haven’t figured out how to manage a process; and you create this train wreck and you burn through a lot of cash.

yegg: So in either case (bootstrap or venture), you’re saying you should definitely start with one person, get the process down, and then bring in more people.

skmurphy: Yes, and referring to your earlier question about titles, there are going to be a few titles you are going to be calling on. You would like to know that this salesperson has called on those kinds of people, and perhaps has some in their rolodex.

yegg: Let’s back up to the founding team. What typically will the founding team consist of to maximize success probability in this arena?

skmurphy: Two to five people, engineers or scientists that have got relevant work experience in the domain or the industry that they are trying to sell to. It’s okay if only one of the two or two of the five, or one of the five has got domain knowledge because sometimes bringing people from different fields is useful.

Outsiders can create strategic surprise because they bring things that work from different fields to this new field.  It’s not a requirement that everybody has worked in the field you are trying to sell into, but if no one on the team has worked in the target industry or field then you may be missing so much basic context that you just can’t get there.

yegg: Do you see that in real life? Entrepreneurs seem to do that a lot–approach an entire new industry looking for problems and hoping they can solve them within it.

skmurphy: I think that’s good for an “Act Two” where you’ve got a proven solution in a primary industry.  I think as a startup trying to make your early sales in a new industry, I think the credibility problem can be very, very challenging.  The only way we’ve seen that work is where you are able to very quickly ask the right questions and demonstrate some capability that people can see the benefit for themselves.

There is also a shibboleth effect: you may not be aware of how people in a domain use certain words in a way that’s very different form their everyday use or understand jargon or terminology that only has meaning in the industry. You may mispronounce words, use a term the wrong way, or misunderstand someone. This will put a prospect very much on edge and suggest that you don’t know what you are talking about.  Sometimes there are dialects, especially in a very early market, and people from different companies or traditions will use different words to mean the same thing. So you also have to appreciate that and not try and correct the prospect.

Ordinarily we suggest people start with something they know pretty well, and then branch out.  Now, the other way to do that is to bring somebody else onto the team that knows the domain you are going after really well.  So, just to be clear, I am not saying that the entire team has to have deep domain expertise, but if no one on the team does, it can be very hard.

yegg: What else am I missing about this process?

skmurphy: I am giving you an astigmatic perspective, distorted by our focus on bootstrappers in B2B who typically have a decade or more of experience.  We do work with younger teams but even there at least one has a couple of years of domain experience. Other markets work very differently from what I can observe. We are fans of Steve Blank’s “Four Steps to the Epiphany” which is fundamentally a B2B model.

I think one thing that we tell founders that seems to be the most baffling for them is “We are not going on a sales call, we are going to have a conversation; we are going to be genuinely interested in the person’s problems and learn more from them.”  The teams that tend to be more successful are motivated to solve the problem as much as develop a particular tool they’ve got today to solve it.

For example, whatever you start out with in January of 2010, by the middle of 2011 your solution is going to evolve considerably.  Too often there is “better mousetrap” thinking: the entrepreneur believes he has this fist-sized chunk of kryptonite in his trunk, and people with Geiger counters will find him in a parking lot and buy a piece. It doesn’t work that way.

I think the other challenge that new entrepreneurs have trouble with is that it’s as much about self-improvement and developing new skills as it is taking what you’ve developed and finding a market for it.  I mean it’s a very difficult journey and you have to change if you want to continue along it.

yegg: How long does the process of getting the first stage of customers typically take?

skmurphy: Let’s assume for the moment that we are doing some amount of rehearsal before the conversation; that we are making small modifications to the one-page or to the material, later on it becomes maybe an eight-slide deck, ten-slide deck at most. You can do maybe two of those a day if you are working really hard.

Realistically, it takes a while to get on people’s calendars.  You are really trying to talk to people that are legitimate proxies for who is going to ultimately buy it from you. So, that may take two to three months to have those conversations, learn from them, and be where you are.  And, there are sometimes ways to accelerate that by going to what we call target-rich environments, by going to the right conferences, by going to the right places where you can talk to lot of people.

But in the very beginning telling the same story to ten people is a lot of times less efficient in the long an than if you took the time reflect on the interaction, and make small improvements. You lose that ability to learn and adjust if you try and go too fast.

yegg: Would it be then fair to say that the first year is about securing those first few customers and getting it working on-site?

skmurphy: That’s a reasonable timeframe: six to eighteen months to have a couple of customers really in production and some testimonials. Part of the reason why we so tolerant of consulting is that it allows you to sell a mix of things and your product gradually takes over the mix.

yegg: Then roughly, by the end of the second year, you would expect to have defined the sales cycle quite a bit, and potentially hiring a sales person at that point?

skmurphy: Yes, it can vary but somewhere between nine months and eighteen months, if you’ve been able to close business,  you can definitely start to interview people and to look to bring someone on.

There are also ways to leverage partners as intermediary.  The next step up sometimes can be your product actually works well with other products.  You’ve got customers in common; they find it advantageous to bring you in because you solve problems that then create opportunities for them.  So, there is also the possibility of other kinds of solution partners or channel partners.

yegg: In the channel partner case, are there any particular gotchas or ways that you like to frame those agreements?

skmurphy: So a pure sales channel is actually harder to bring on then individual salesperson.  You should bring on an individual salesperson first because you’ve got the sales training problem magnified by a factor of ten or a hundred.  Whenever you are negotiating those agreements, figure out how you are going to get out of them; figure out what constitutes good results and how do you terminate if it’s not working. Spend some time up front on how both sides are going to keep score on the agreement.  Be careful of exclusivity: if they want exclusivity, there is going to be some kind of guaranteed payment or guaranteed revenue stream.

So ordinarily we would see some kind of solution partner or somebody else that can help, then a single sales person, from there you may add a second sales person, you may look for channel partners.  A lot of companies end up in the four million dollar to ten million dollar level, and if they’ve got a recurring revenue model then one or two sales guys can keep it going.

yegg: On the bootstrapper side, is there a particular way you look at this as the right time to raise outside money or not?

skmurphy: When you go to raise money you need to be able to explain to investors how you are going to pay them back.  If you really are held back by an inability to take advantage of the opportunities you’ve uncovered, if you’ve got a real recipe for making your business work and how to scale sales up, then that’s a good time to raise money.

But, if you are running out of money and you can’t meet payroll, and you can’t quite figure out who you’ll sell to next, taking six months out trying to raise money will probably kill you.  I mean a lot of people that are running out of money think that finding investment is the answer, and that’s almost never appealing to an investor.

yegg: Putting that in the context of the cycle we’ve been talking about, it seems you’d be raising money when you’re a little further a long, i.e. after the first few customers and you’re ready to bring on the first sales person?

skmurphy: Sure, it’s legitimate to seek investment to be able to pay the sales guy if you have a proven sales process one of the founders can manage. A brief detour on commission only sales people: it seems like it’s a way to save money, but in general you don’t get their full attention and it doesn’t do you a lot of good.

yegg: And how much would you price an initial sales person?

skmurphy: As a base, again Silicon Valley, recessionary times, I mean might be 5k a month, might be 4k a month–depends on the person sometimes, a little less.  There might be a non-recoverable draw of that much again for the first three months.  The real challenge is you’ve got to be willing to fire them within sixty days, ninety days if it’s not working out. And, you’ve got to have a plan for how you are going to evaluate how good they are, and go on to the next person if this guy is not working.

yegg: And that would presumably be you’ve set aside some leads, you send them on those calls, and see what happens?

skmurphy: It’s still a team effort, you go with them; you keep a close eye on them.  It’s very different from an engineering hire where you can look at the guy’s code and make an assessment of what’s going on. Sales is primarily improv.  You can look at the proposals; I mean there is some amount that’s written. But, one of the founders has to be going on the sales calls.

yegg: But ultimately, even if you like what they are doing on the calls, if the business isn’t closing, it is probably time to look for someone new?

skmurphy: Well, the presumption there is that prior to bringing them on, you had been reliably closing business. Now, reliably closing business may mean it still takes you six months from the time you first talk to the person to close the deal.  The sale cycles can be long, and I am not saying you’ve got to fire somebody in ninety days if they haven’t closed a sale, but you should be able to see bona fide progression markers pretty quickly.  You are moving from initial calls to customer supplied data to evaluations to final proposals.

I am not a fan of “probability of close” metrics. I like to see sales milestones that are tangible: the prospect has to have done something in the last two weeks to indicate interest or progress in making a decision.

Vision Is Critical But Avoid The “Field of Dreams”

Written by Sean Murphy. Posted in 2 Open for Business Stage, 3 Early Customer Stage, Customer Development, skmurphy

The Field of Dreams model or “build it and they will come” is a variation on the mousetrap trap “build a better mousetrap and the world will beat a path to your door.” What follows are a excerpts from pages 251-252 of the paperback novel  Shoeless Joe by W. P. Kinsella that was the basis for the movie “Field of Dreams.” They neatly summarize many of the worst and most self-limiting beliefs that doom startups to an early dissolution.

“I’ve had a dream. I know how things are going to turn out.”

Any new venture has to start with a vision that energizes the founders. And if they knew how hard it would really be, how far they were from making things turn out to match their vision, perhaps no one would start a company. It’s not the action of a hard headed realist. While you need a shared vision and shared values to form and motivate your team it has to be  subject to ongoing verification and refinement based on the unfolding situation and what you learn about “the facts on the ground.”

“Listen! It will be like this…” [...]

Where you can get into trouble is not wanting to explore not just the edges of your vision but the critical assumptions you made.

“It will be almost a fraternity, like one of those tiny, exclusive French restaurants that have no sign. You find it almost by instinct.”

If you conceive of your startup as so exclusive and of such high quality that no marketing of any kind will be required, just word of mouth, you ignore the need to boil your value proposition down to a simple message. There is clear value in having satisfied customers who evangelize your product or service but assuming you don’t need any marketing or messaging is a recipe for continued obscurity and oblivion.

“The people who come here will be drawn…” He stops, searching for words “Have you every been walking down the street and stopped in midstride and turned in at a bookstore or a gallery you never knew existed? People will decide to hoiday in the Midwest for reasons that they can’t fathom or express”

If you cannot list the paths that prospects will take to find you and specific reasons why they will investigate time in exploring your offering then you are just fantasizing. Looking for generic “early adopters” or “firms that want to be innovative” is a sign that you have do not have a clear hypothesis for the specific value your solution will offer a prospective customer.

“They’ll turn off I-80 at the Iowa City exit, drive around the campus, get out and stroll across the lawns, look at the white columns of the Old Capital Building, have supper at one of those tidy little restaurants, then decide to drive east for a while on a secondary highway.

If the situations that you anticipate that your prospects will find themselves in are unrelated to a particular pain or need you can address then you have too large and unfocused a vision and too little real empathy for your prospects. Wanting to do a “Big Data” offering or to “attack the cleantech market” makes you fully buzzword compliant  with other startups but doesn’t really give you any assumptions that you can test or refine.

“They’ll turn up your driveway, not knowing for sure why they’re doing it, and arrive at your door, innocent as children, longing for the gentility of the past, for home-canned preserves, ice cream made in a wooden freezer, gingham dresses, and black-and-silver stoves with high warming ovens and cast-iron reservoirs.
“‘Of course, we don’t mind if you look around,’ you’ll say. ‘It’s only twenty dollars per person.’ And they’ll pass over the money without even looking at it–for it is money they have, and peace they lack.”

Four very dangerous assumptions

  1. Prospects are willing to explore your website for more than a minute even if they cannot see something that they can use.
  2. You can sell ads without investing the effort to characterize your visitors and determine who will pay you for their attention.
  3. Because your team finds your product concept compelling it must be the case that what you have is so intrinsically compelling that you don’t have to develop a real model for the value that you offer–and to set a price that reflects that value.
  4. People will pay you for an abstract or fuzzy set of benefits.

“They’ll watch the game, and it will be as if they have knelt in front of a faith healer, or dipped themselves in magic waters where a saint once rose like a serpent and cast benedictions to the wind like peach petals.”

There is a spiritual component to any task or business, but it’s there because you want to offer real value and have authentic relationships with your customers, suppliers, employees, and partners. Even if you are offering medical care or cleaning up the environment or preserving a neighborhood for the next generation you have to earn a profit if you want to continue. That means that customers will need to gain tangible value from your offering and pay you more than it costs to provide your product or service.

“You talk a good dream,” I say to Salinger.
“I dream of things that never were,” says Jerry.

There is always a place for vision and spiritual values in a business. Few if any firms can survive long without it. But profit that flows from providing something customers pay for is also necessary, as is the continual exploration of customer needs and the ongoing testing and refinement of all of your business model assumptions.

In the movie “Field of Dreams” pages 251-2 were compressed into a somewhat different monologue by the character of Terrence Mann (J. D. Salinger in the book) played by James Earl Jones. See http://www.monologuedb.com/dramatic-male-monologues/field-of-dreams-terence-mann/ 

See “The First Seven Questions Any Product Plan Should Answer” for a start on the key questions that the “if you build it they will come model” ignores.

 

16 Quotes on Customer Development From Asif Mandozai

Written by Sean Murphy. Posted in Customer Development, Quotes, skmurphy

I have been following Asif Khan Mandozai (@asifmandozai) on twitter for several months now and thought I would curate a set of is best quotes on customer development for posterity. He is consistently practical and insightful.

If your customers just want to go from point A to point B. Build them a go-cart not a Ferrari.

Good idea for an initial offering, and an absolute requirement for any minimum viable product (MVP).

Design is NOT everything. Consider products in the market customers pay for which solve STRONG problems but lack good design.

Customers will forgive you on bad design if you are solving a strong enough problem.

There’s a difference between STRONG problems and BIG problems. One is around pain level and the other around market size.

I like his “strong problem” formulation where the gap or delta between current results and outcomes that your product or service can offer is large.

Always look out for problems on the periphery of the main problem you’re addressing where competition may be much lower.

If your prospects repeatedly show interest in something unrelated to what you are validating – swerve & follow what’s really bothering them.

Let your customers guide what your product must become by showing you the problems your product must address.

Be guided by where your prospects are telling you to focus your efforts.

Innovation is like fire – It’s magical until it’s understood. When understood, it becomes accessible to everyone. Value shifts to execution.

Be careful of “lighting the way for your competitors” by being unprepared for the need to continue to refine your offering and improve the quality and speed of your execution once you start to gain traction.

“The whole world” is NOT a good answer when you are asked “Who is your target customer?”

You find your thousandth customer only after your hundredth & your hundredth after your tenth. Your tenth after your first. Start there.

Even one customer is an achievement – go find out why they paid.

Find out the story behind why they selected you. That requires a conversation. Here are three related blog posts

“It’s a great sign to see when your prospects get emotionally charged when talking about problems or solutions.”

Conversely a lukewarm response or little emotional involvement or energy around a problem probably means that either the problem isn’t very important or your proposed solution is not seen as providing much value.

“The calm before the storm is always riddled with assumptions.”

If you cannot think of a dozen things that might go wrong or that you need to understand better you probably aren’t thinking about your customer’s situation hard enough.

There’s a big difference between Users, Customers and Channel Partners. Who are you really validating with?

Customers pay you, they are the only ones who can validate an MVP.

Don’t be afraid to tell your customers you’re still in early stages and need their help: serve and learn.

I think this is better done with a “we are just getting started so we are going to try harder” rather than using it as an excuse for  poor performance. Most startups that fail run out of trust before they run out of money. Social capital is more important than financial capital in the early market.

“Usually zero product adoption isn’t because that one feature wasn’t added but rather that the problem wasn’t properly understood.”

Zero product adoption often involves targeting the wrong customer or trying to engage with a poor message that obscures the value of your offering.

Market Discovery and Exploration Requires Models from Physics, Biology, and Psychology

Written by Sean Murphy. Posted in Customer Development

Q: Appreciate your thoughts on qualitative vs. quantitative approaches to  market exploration. Customer development is like qualitative research; it is good for exploring hypotheses (and associated issues) but cannot validate them (by its very nature it is small sample size). To validate startup hypotheses one needs to do quantitative research, e.g. surveys, measurements (A/B tests), and have an appropriate sample size, statistically speaking.

I am a big believer in a scientific approach to entrepreneurship, but you have to consider what kind of science is actually involved: physics, biology, zoology, or human psychology? Any successful product introduction requires a mix.

If we can eliminate the human element then markets become much easier to predict and much more amenable to techniques used in chemistry and physics to great success the last few centuries. But a startup that treats markets made of people as a collection of molecules at equilibrium in a gas is unlikely to prosper.

Botany and Biology tend to be more descriptive and less predictive because of the vitality of the subject matter. Antibiotics “proven” to work thirty years ago (or even last year) lose their efficacy in the face of adaption by bacterial population. Staph is still genetically staph, but some samples found in hospitals–and increasing not in hospitals–is no longer bothered even by methicillin. This caused pharmaceutical firms to overestimate the market for existing antibiotics and underestimate the need for new antibiotics and new techniques for rotating their deployment.

Zoology requires that we account for consciousness, making  animal behavior even less predictable. Sparrow populations learn to sip the cream from the top of milk bottles left on suburban doorsteps and then to peck through the tin foil covers applied to prevent them from sticking their beak in. Each iteration of the milkman’s product was satisfactory only for a while, and that’s before we consider changes in human preference.

The study of human psychology is complicated even further by the presence of will on top of consciousness and vitality.

All of these are sciences: they each rely on careful observation and falsifiable hypotheses. But to long for the certainly of a chemical reaction in planning  a new product may blind you to entire categories of opportunity. You can be disappointed by a survey but you have shackled the interaction to the point where it’s impossible to be surprised–people cannot really tell you anything you have not already anticipated. Most of the really interesting experimental results are unanticipated: “The most exciting phrase to hear in science, the one that heralds new discoveries, is not ‘Eureka!’ but ‘That’s funny …” (an insight attributed to Isaac Asimov). It’s not A or B but the realization that you should be asking a different question.

Heraclitus said that you cannot step into the same river twice, because the river is not the same, and neither are you. Markets evolve unpredictably but with increasing rapidity if we judge by adoption cycles for pervasive consumer goods (e.g. telephone, radio, television, microwave, cellphone,…). So a “statistically significant proof’ of solution-problem fit or product-market fit may have a shorter and shorter half-life.

I accept the Cluetrain Manifesto’s first thesis that “markets are conversations.” If you do then you are forced to reconsider where the real challenges are with new product development and introduction.  If you are trying to join a real conversation there are only small sample sizes: your success may in fact be predicated on continually evolving your offerings to customize it to the particular needs of each prospect (or enable them to re-configure and customize it).

My hypothesis is that startups that organize and execute around discovery driven sales, mass customization of offerings, and genuine human interaction with their customers will substantially outperform those predicated on a commodity business model (high volume, low variation, low service). I would make s distinction between measurement that observes and correlates actual customer behavior and use of your product vs. automated testing methods that seek to substitute a mechanical interaction with prospects for a conversation.


Note: I am indebted to E. F. Schumacher’s “A Guide For The Perplexed” for his hierarchy of minerals-plants-animals-man differentiated respectively by vitality, consciousness, and will as well as the distinctions between the sciences that study each level of being.

How To Start a Warm Conversation About a Customer Problem

Written by Sean Murphy. Posted in Customer Development, skmurphy

Q: In the early stages of a company when you are doing the Customer Discovery phase–and don’t actually want to pitch a solution/product to someone–what has worked for you in terms of getting IT people / CIOs to take a meeting? Is it predominately warm references? How are you setting the stage for these meetings?

Most of our approaches to reach prospects in larger firms, in particular intrapreneurs or change agents, are warm (not a cold call or cold e-mail):

  • through an introduction by someone respected by the prospect
  • an on-line conversation in a newsgroup or forum
  • blogging about the problem and generating in inquiry
  • speaking about the problem
  • organizing a meetup or birds of a feather at a conference about the problem

IT people are very difficult to approach. They are rarely internal change agents and they are typically focused on compliance with existing policies and preserving the current direction / status quo. As a rule of thumb CIO’s hate startups.

Theresa blogged about this in “Selling Around IT in Larger Firms” and suggested five ways to avoid getting blocked:

  1. Provide a service (deliver the results of you running your software) instead of selling software.
  2. Package your offering as SaaS at a price that’s below the radar of IT.
  3. Leverage an existing partner: Who else is your prospect buying from?
  4. Find someone who is in a lot of pain whose needs have been ignored by IT.
  5. Find someone whose needs span more than one IT administrative boundary, so that no single IT group views satisfying the need as their obligation.

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