1 comment September 1st, 2010
I did this with the DreamSimplicity folks last month. It’s a chart I have been drawing in various customer meetings for the last several years or so and they thought it would make for a good short video. The challenge was lighting the whiteboard appropriately. I think it came out well.
I welcome any feedback or suggestions for other topics. I will post a transcript next week.
Add comment August 26th, 2010
We put the interview I did with Floyd Tucker of DreamSimplicity about a month ago but in the last two days I have had two people comment to me directly and one tweet about my “three equations and three unknowns” answer:
@dorait Sean: Startups are trying to solve 3 equations with three unknowns – http://bit.ly/dq7Sqd
Here is the relevant excerpt from the transcript:
FLOYD TUCKER: [...] Can you tell me a little bit about the early customer stage?
SEAN MURPHY: We just spend a lot of time on this. It’s a very different sales style than you’ll see later on. It’s a conversational sales style. It’s much more about understanding the problem.
You’re trying to solve three equations, three unknowns:
- Are you talking to the right people?
- Do you have the right features?
- Do those features translate into benefits that are going to be useful to them?
Here are three strategies that founders often use to answer these three interrelated questions, the likely results that ensue, and how we help them make key adjustments to get early customers and early revenue.
Current Strategy: Demo the product to anyone who will sit still. And by demo I mean explain how the product works.
Current Strategy: Talk to a number of target customers, compile a large wish list of features, return to BatCave and start work on a one year roadmap.
Current Strategy: Talk to a number of target customers about a challenge they face (e.g. saving money, increasing productivity, reducing certain kinds of errors).
Add comment August 10th, 2010
Marc Andreessen wrote a blog post on June 25, 2007 “The Only Thing That Matters” where he wrote
In a great market — a market with lots of real potential customers — the market pulls product out of the startup.
The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along. The product doesn’t need to be great; it just has to basically work. And, the market doesn’t care how good the team is, as long as the team can produce that viable product.
[...] Conversely, in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn’t matter — you’re going to fail.
[...] The #1 company-killer is lack of market.
In honor of Andy Rachleff, formerly of Benchmark Capital, who crystallized this formulation for me, let me present Rachleff’s Law of Startup Success:
- When a great team meets a lousy market, market wins.
- When a lousy team meets a great market, market wins.
- When a great team meets a great market, something special happens.
You can obviously screw up a great market — and that has been done, and not infrequently — but assuming the team is baseline competent and the product is fundamentally acceptable, a great market will tend to equal success and a poor market will tend to equal failure. Market matters most.
And neither a stellar team nor a fantastic product will redeem a bad market.
Third question: as a startup founder, what should I do about all this?
Let’s introduce Rachleff’s Corollary of Startup Success:
The only thing that matters is getting to product/market fit.
Product/market fit means being in a good market with a product that can satisfy that market.
You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.
And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Buck’s.
Lots of startups fail before product/market fit ever happens.
My contention, in fact, is that they fail because they never get to product/market fit.
[Editorial note: this post obviously raises way more questions than it answers. How exactly do you go about getting to product/market fit if you don't hit it right out of the gate? How do you evaluate markets for size and quality, especially before they're fully formed? What actually makes a product "fit" a market? What role does timing play? How do you know when to change strategy and go after a different market or build a different product? When do you need to change out some or all of your team? And why can't you count on on a great team to build the right product and find the right market? All these topics will be discussed in future posts in this series.]
Andreessen posits product-market fit as a one bit variable–either you’ve got it or you don’t. This formulation has had a very strong influence on a lot of customer development thinking ever since. To my knowledge he hasn’t written the follow up posts he promised in 2007 so others have been left to puzzle it out.
I think he got it wrong for several reasons:
I think it’s a fraction that measures the relative fitness at a point in time for a product solving a problem for a particular customer set. If those customers “reference each other’s buying decisions” (to borrow a phrase from Geoffrey Moore’s “Crossing the Chasm”) then you have a market and a measure of product-market fit.
Reading Ben Yoskovitz’s “Product-Market Fit or Market-Product Fit?” crystallized this for me. He argues, as Blank does, that most startups need to “sell the product they have” which means finding a market for the existing feature set.
After all, you don’t just start building the product, launch it and then hope to heck that it works, right? But this happens a lot. We don’t always get to start at Step 1. In some cases there’s a functioning product, a bit of traction, but no clear direction and no scalable opportunities (at least not plainly in sight). So when this happens, what can you do?
Steve Blank talks about this in “Four Steps to the Epiphany.” Instinctually you may think it makes sense to keep building more features or radically change the product. But if the Product-Market Fit isn’t right, more features isn’t likely to solve the problem. And investing in rebuilding the technology is going to take a long time, cost a lot of money and not necessarily guarantee any additional success. Instead, Steve recommends finding a market for the product you have. Take the product, point it at a different market and see what happens. Rinse and repeat.
In my mind that’s Market-Product Fit — finding a market to fit an existing product (vs. building a product to fit an existing market).
For many startups this is what they need to do because they’ve got a product but no market. Find a market. In some respects this is a slight handcuff – you’re not starting from scratch and the product can feel like “baggage” – but before throwing your product in the garbage and starting anew, it’s worth looking for a market where there is a fit. Incidentally, the same holds true for a business model. You may have a product but the wrong business model. You don’t scrap the product, you change the model. That’s very much Market-Product Fit.
Pitch the product you have, but… don’t feel obligated to pitch it exactly as it exists today. Simultaneous to your efforts in finding the right market and business model, you need to be envisioning what I would call “product+”. This isn’t a complete rebuild of your existing product that will take huge development time, but there’s no reason you can’t pitch a modified/extended version of your existing product as you’re discovering the appropriate market, business model and that market’s product requirements. As you’re collecting feedback, and plowing through prospective prospects, you should gain significant clarity on what product+ will look like. That will help you iterate quickly on the product development front. But sell what you have now.
It’s not easy to find a market for an existing product. And the reality is that there may not be a market for the product you have and it will require significant changes or a complete overhaul. (Or it’s time to get into a new business.) But before you get to that stage, stop, pull back and look for a customer base that will pay for what you’re selling. It’s still about following a rigorous Customer Development process, but starting partway through and trying to go back, without going completely back. Think of it as Market-Product Fit.
It’s a little bit like beating swords into plowshares but I think this is a good model and an important re-framing for founding teams to bear in mind. Whether it’s “P-M fit” or “M-P fit” it’s not a binary variable, it’s a fraction between zero and 1 (few products are perfect) that varies over time in response to changes in the market and the availability of new technologies and competing alternatives. Many successful products achieve modest success in an initial niche and then find a much better (and/or larger) niche where they achieve better traction.
Invest BEFORE product/market fit, measure/test to see if the team is finding it, and if so, then exercise your pro-rata follow-on investment opportunity AFTER they have achieved product/market fit. It’s sort of like counting cards at the blackjack table while betting low, then when you’re more than halfway thru the deck and you see it’s loaded with face cards & tens, then you start increasing your betting & doubling-down.
Let’s face it — most venture investors are sheep. We like unfair advantages. We want to know that there is already customers, revenue, and that elusive thing called TRACTION. Unfortunately, if it’s obvious that there is already customers, revenue, and TRACTION then there will likely be a LOT of other investors at the trough, the competition will be fierce, and as a result the price to invest will be high.
1 comment July 28th, 2010
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The business buyer views software as the promise of a relationship.
This means that you need to assess not only the strength of prospects’ interest but also your customers commitment to the business relationship. They often pay you not just for what your product can do today but for what you promise that it will become with their help. This requires you to continually evaluate customer commitment to use, to pay for, to suggest improvements, and to offer testimonials and referrals that help your sales efforts. |
One natural approach to evaluating customer commitment is to ask directly. The challenge is to do so in a way that affirms your commitment not only to the product but to the potential relationship with a prospect or the current business relationship with an active customer.
The National Lampoon magazine ran a famous cover in January of 1973 that said “If You Don’t Buy This Magazine, We’ll Kill This Dog.” It sold a lot of magazines.
Startups that inadvertently communicate “if you don’t buy this product we will kill it” in the B2B space are unlikely to be as fortunate. A question that attempts to test the strength of the relationship by suggesting the loss of the relationship will signal a lack of commitment that can poison a business relationship that is otherwise developing well.
In particular asking them “if they would be disappointed if they could no longer use your product” may inadvertently plant doubts in their mind as to your commitment both to the product and to your relationship with them.
Please don’t use a survey or an e-mail to assess their commitment. Have a conversation: either face to face or on the phone. If you are trying to asses their level of emotional commitment it’s much more natural and easy to do so in a conversation .
If you actively listen for indications of their level of satisfaction and commitment to the product, their tone and speech patterns will tell you much more than any checkbox, radio button, or e-mail text. Open ended questions about what they value about the product and how to improve it will normally elicit useful suggestions from customers who are even mildly committed.
Note: magazine cover thumbnail from “Three Unforgettable Dog Photographs”
Here are six related blog posts about early customer interviews:
Add comment July 22nd, 2010
I was recently interviewed by Floyd Tucker of DreamSimplicity Marketplace and now have a transcript courtesy of SpeakerText (which I have edited for clarity and added hyperlinks):
FLOYD TUCKER: Good morning, this is Floyd Tucker with DreamSimplicity. I am here with Sean Murphy, the CEO of SKMurphy, a consulting firm that focuses on high tech startups. Sean, you started SKMurphy back in 2003 and now have a team of six consultants helping high tech startups generate a repeatable, scalable business. You are also the founder of Bootstrappers Breakfast, which is now in eight cities.
Sean, thanks so much for being with us.
SEAN MURPHY: Good to be here.
FLOYD TUCKER: Sean, you have a passion for entrepreneurs: what drives your passion to work with bootstrappers and startups?
SEAN MURPHY: The neat thing about early stage startups is that everyone is really customer-facing.
It’s a small boat, there’s no place to hide. And for that reason, you are more able to take risks to get somewhere. You can’t stay where you are: you’ve got to move forward.
Big companies can solve harder problems in some sense, but they’re typically more constrained by politics and by other kinds of challenges. Small firms tend to be more innovative and more energetic.
FLOYD TUCKER: OK. Is there a certain formula for startup success or is each one unique and blazing their own trail?
SEAN MURPHY: Each team is unique. They have unique skills, unique talent, and a unique background. That being said, we normally a see five stages that teams go through.
FLOYD TUCKER: What are some of these milestones that you’ve been seeing?
SEAN MURPHY: In the beginning the real questions are:
That’s the formation problem.
To get open for business you’ve got to figure out who’s going to be on the team. Who’s going to be part of this company?
Once you’ve got the team set, your next question is who will be the early customers. Who is your customer?
If you can close some business, you can now say, is there a niche we can identify, is there a business model we can sketch out here? Pricing points, all the things that are involved in actually creating a sustainable business.
And finally, when you’ve got it sustainable, can you make it a scalable business? Can we scale this up? Can we transition from heroic efforts to routine, excellent performance?
FLOYD TUCKER: I understand the formation around a product, and of course be open for business. Can you tell me a little bit about the early customer stage?
SEAN MURPHY: We just spend a lot of time on this. It’s a very different sales style than you’ll see later on. It’s a conversational sales style. It’s much more about understanding the problem.
You’re trying to solve three equations, three unknowns:
FLOYD TUCKER: What’s involved in the scaling up stage?
SEAN MURPHY: This is actually a hard problem for a lot of founders. Because most people don’t go to startups to create processes and establish structures. They go to startups to make their own rules and to improvise new solutions.
So the challenge is really the transition from the heroic to the routine.
I think the other aspect of that is that the people that tend to do well in the early stages of a startup tend to be generalists. To prosper, to scale up, you’ve actually got to hire specialists that are good in a particular position.
And you’ve got this transition to the need for more process and the need to hire specialists, so things are not as fun anymore. Now, they may be much more lucrative, but they’re not as fun.
FLOYD TUCKER: I feel I have a good understanding of the roadmap that we’re talking about. Can you give a couple of examples of some of the common issues that you’ve seen?
SEAN MURPHY: A lot of people when they start companies are in the grip of a vision. They see this full-featured product. They see this Death Star or “Swiss Army Chainsaw” that’s got all this stuff, right.
And the reality is that customers are only going to buy for one or two reasons.
So you really have to focus on “what’s the least that we can do to start to be able to sell?”
Because if you’re bootstrapping, you have to sell sooner rather than later. So what’s going to move the needle for the customer.? And it’s ultimately where you’re going to get their perception of value.
So the challenges are:
FLOYD TUCKER: Given the fact that most startups have limited resources, with time, money, personnel being issues for them, why should they look to outside advisors?
SEAN MURPHY: Founding teams bring a lot of passion to what they’re doing. There’s often what you might call “a full and frank exchange of views” around certain topics.
It can be useful to have people you trust, whether it’s friends, acquaintances, people you have worked with. On an informal level, you can bounce ideas around with. That gives you a kind of emotional perspective, or emotional distance, right?
Formal advisors can do the same thing for you; they may also be more familiar with some of the early market issues.
As you formalize that process, half of the value is actually in the team coming together, agreeing on a set of objectives, agreeing on a story and then getting feedback as a result. It’s half in the preparation and half in the delivery. So I would say it’s perspective, it’s getting used to setting targets formally.
FLOYD TUCKER: So, Sean, as founders get closer and closer to market, what are some of the things that you see them getting stuck on?
SEAN MURPHY: Many times, the founders, in the beginning, will sell to people that already know them. And so, a couple of things happen as a result:
Another thing that can happen is that an early customer may use a product in a certain way that’s different from what the team anticipated. And the team is in the grip of the vision, their thing is “hey you’re using my product wrong!”
When in fact, what they may have done is to point you to where the market really is.
FLOYD TUCKER: Sean, I want to thank you for your time today, but I do have one last question for you. You know, to me you don’t sound like a traditional marketer. How do you differentiate yourself?
SEAN MURPHY: So, the people that come to us, that are bootstrapping, are unhappy with current level of revenue.
We focus on revenue. Whether that means that we are doing sales process, we’re doing marketing, we’re doing business development, what we call customer development that covers all of those.
FLOYD TUCKER: So Sean, thanks so much for spending some time with us. To learn more information about Sean, and SKMurphy, visit SKMurphy.com and bootstrappersbreakfast.com.
2 comments July 16th, 2010
Seth Godin’s post today on “A Hierarchy of Failure Worth Having“ crystallized one of my concerns with some recent startup practices. Godin outlines the following desirable hierarchy of failures:
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
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 more recently where founders undervalue a relationship with a customer based on mutual trust and commitment.
Add comment June 8th, 2010
I find the the following to be useful for boiling down customer discovery and validation for B2B products.
Add comment May 12th, 2010
One recurring question is “Why Can’t We Do More to Test “Customer Development” Theories.”
Where Steve Blank identifies three kinds of markets–existing, resegmented, new–there are probably thousands, or at least fine gradations if his three. So your “lab equipment” is complex. I think in the same way that Heraclitus observed that “you cannot step into the same river twice” you cannot step into the same market twice.
I think the more important thing Steve has done is to caution against three common failure modes of engineering driven companies as they approach the challenge of marketing and selling their product:
In that sense it’s a useful antidote to
I always wonder what “Plan B” is if you decide the customer development model is not for your team. What are we comparing it against. Brant Cooper has identified “4 Anti-Lean Startup Archetypes” that might serve as candidates:
3 comments May 4th, 2010
Steve Blank gave a thought provoking talk at the Startup Lesssons Learned Conference on “Customer Development 2.0: Why Accountants Don’t Run Startups” (slides here and related blog post “Why Accountants Don’t Run Startups” which is part of a category of blog posts on “Durant vs. Sloan“). He also referenced Robert Shedd’s list of startup accelerators “Help for Startups! – A semi-complete list of startup accelerator programs” and noted that many of them were now offering entrepreneurial education: “most startup accelerators have great coaching but minimal methodology.”
Blank then noted the disconnect between what entrepreneurs need to know for an early stage firm and the skills they need for a mature business.
Steve predicted that E-Schools for entrepreneurs would emerge, the counterpart of B-Schools for managers in established firms, and asked the attendees to help build them: “E-School–Let’s Help Build It.”
I think that there may not be good reasons why things are the way that they are, but there are strong reasons. There have been a number of critiques of the VC funding (and seed funding) process which are relevant to the E-School concept:
A number of organizations have also identified and attempted to address this issue. Earlier efforts have tended to focus on providing office space, small business management skills, and introductions to potential funding sources. Blank’s E-School model, with it’s customer development, focus represents a welcome innovation. Here is a representative set of older and emerging E-Schools:
Part of the challenge with a new methodology is that funded firms are very risk averse to adopting a new methodology once they have raised venture financing. For the most part funding convinces them of the correctness of their plan and, given that they were able to raise a round, their default strategy is more fund raising instead of focusing on customer revenue if they hit a speed bump. I think it may be difficult to trigger much of a change, at least initially, in venture backed firms.
There is probably an opportunity for Angel education (and aggregation) in that requiring customer development techniques will act as a multiplier on most investments (or at least in many markets). This seems to be what the Venture Hacks Angel List and Floodgate are already executing.
In his talk Blank was clear that early stage firms need a different dashboard than the standard revenue pipeline, balance sheet, and income statement. Providing instrumentation and operational guidance for what board level review should look like in an early stage firm that’s been Angel funded might be a good insertion point for an E-School methodology.
Why Angels? They are investing their own money and don’t have recourse to management fees from Limited Partners for compensation, so they are more likely to adopt techniques that increase the chance of success and wring more value out of their seed investment. E-Schools probably stand the best chance of disrupting the VC ecosystem “from the bottom” and that would be the Angels and seed funds. One measure of success would be to specify a “lessons learned” format to substitute for the “demo day” that incubators run to help startups generate follow on investment.
Related Blog Posts:
Add comment May 3rd, 2010
Vivek Wadhwa wrote a great post recently called “Ditch the Biz Plan and Buy a Lottery Ticket” which oddly enough contains a number of good pointers on bootstrapping. His opening paragraph explains the title (emphasis added)
Hardly a day goes by when I don’t have a rookie entrepreneur ask for advice on raising money from VCs. They usually have a fancy-looking business plan with detailed spreadsheets showing how their company will be worth billions by capturing just 1% of a market. All they need is some financing, and they’ll take the world by storm. My advice is always the same: ditch the business plan, and buy a lottery ticket. Your odds are better, and you’ll suffer less stress.
He goes on to acknowledge that there isn’t a single recipe for bootstrapping, but offers some useful pointers, here were my top five:
This is where events like the Bootstrappers Breakfast® meetings or the Lean Startup Circle Meetups give you a chance to compare notes with other entrepreneurs. Focus on the areas where you have the most risk, typically these will be customer and market issues not technology.
Sell what you have. If you can start by consulting and add software or other technology to your offering this will allow you to get into immediate contact with prospects. The Aardvark team has been public about the fact that most of their offering was implemented “Wizard of Oz” style by the man behind the curtain and was not software but manually generated e-mail and IM messages designed to mimic final system operation in a working prototype. Your product may admit of the same approach.
If someone is not only willing to pay but actually writes a check or runs a credit card you will learn more about what features are needed than any amount of discussion of what a prospect would like.
Vivek’s context was that you had to live through the short run to make it to the long run. Chasing large deals, “elephant hunting” exclusively may mean that you will starve to death. Appreciate squirrels and rabbits, you can still add them to the elephant stew and you are less likely to go broke waiting for a few big deals to close. Also, small deals give you references and testimonials that make the medium and larger deals more likely.
Selling in the early market is much more of a conversation that focuses on the prospect’s perception of their problem and any constraints on a solution. One common myth is that introverts are poor at selling. Shy people may be poor at selling but shy is not the same as introverted. Introverts are normally more willing to listen than extroverts and in the early market you “sell with your ears.” In fact, introverts may very well be more effective than an extrovert who cannot shut up and let the customer explain their perspective on their needs–I write this as an extrovert who has managed to talk my way out of opportunities from time to time when I should have asked a few more questions and listened more carefully.
Another trap the technical folks can fall into when selling is to believe that you are “bringing fire to the savages.” You see the benefits of your offering very clearly, but you assume that your prospects are lost or clueless unless they adopt your approach. Most of the time there is a working status quo that you have to significantly outperform to foster adoption, and very few new technologies are fully form fit and function compatible.
On mindset you can adopt to guard against technical arrogance is appreciative inquiry, which assumes that there are a lot of things are that are good about the current situation and you should understand and appreciate them before suggesting any changes. Focus on clearly understanding the customer’s perception of the problem and the constraints that any improved solution must respect, some of these will be technical, many will be cultural.
I have blogged about Appreciative Inquiry and related ethnographic methods in:
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