Serious Problems With Business Model Canvas For Startups

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

Q: I’m just about to get out of the building to validate hypotheses and start learning, but I have a problem with the business model canvas. I have been advised to develop detailed hypotheses before starting customer discovery. This is my startup and I have no idea how to fill in the business model canvas channel box or answer Steve Blank’s BMC channel/pricing hypotheses question on “the price at which half of the customers say yes.”

Serious Problems With Business Model Canvas For Startups

I see serious problems with business model canvas for startups. Founders get stuck trying to fill in every box in the BMC before doing any customer interviews. It triggers the analysis paralysis that you now find yourself in.

THE BMC is a template designed initially for large European firms (the equivalent of the US Fortune 500) and not intended for use by startups.  I agree with Osterwalder’s definition for a business model:

“A business model describes the rationale of how an organization creates, delivers, and captures value.”
Alexander Osterwalder in Business Model Generation

Customer Development and Channel Development

Written by Sean Murphy. Posted in Customer Development, skmurphy

I am rescuing a dialog on customer development and channel development I had with Ash Maurya from the comments to his “Lessons Learned in 2010” blog post. I am still at work on the “system of simultaneous equations” model and I think his new thinking on the “Customer Factory” is moving closer to iterating against multiple constraints simultaneously. I know with Theory of Contraints you should focus on the rate limiting constraint but after a few iterations everything can start to pinch.

I continue to work with the Okaloa team on Discovery Kanban and think that it also allows for the integration of option management into the next set of actions you are considering. This is still a work in progress and I welcome comments or suggestions for improvement.

Tristan Kromer on Testing Customer and Value Hypotheses

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

These are excerpts from  Episode 9 of Outlier on Air: Tristan Kromer, A Lean Approach to Business.  They are in the same sequence the took place in the interview but a number of stories and asides have been omitted to focus on what I felt were some extremely valuable insights from Tristan Kromer on clarifying and testing customer and value hypotheses.

No Such Thing as a Random Sample of Five People

Written by Sean Murphy. Posted in Customer Development, skmurphy

Q: I have 3D printed a couple prototypes of my product. I am going to get user feedback by letting security guards–my target market–test if for free for a few days. How many prospect should I have test it before I can determine if there is a market for the product.

Since you are 3D printing and can iterate I would start by getting feedback from five folks: see Why You Only Need to Test with 5 Users by Don Norman for some research on why this is a reasonable place to start.

You will more than likely end up talking to more folks before deciding if there is a market or not but working with a small group at one time and testing iteratively will be easier to manage and teach you things more rapidly.

What Are Core Skills For Customer Development?

Written by Sean Murphy. Posted in Customer Development

Q: What is the core mission for customer development at an early-stage start-up? Wat are the skills necessary to execute on that mission?

Customer Development Mission

Core mission is early customers, early revenue, early references. All of these reduce risk, demonstrate traction, and make subsequent sales efforts easier (and for bootstrappers, keep the lights on).

User Experience Research vs. Customer Discovery

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

Q: Why don’t you ever blog about User Experience Research (UX)?

The short answer is that we don’t do it.

Our Clients Want Leads and Deals

My clients come to me for help generating leads and closing deals, so that narrows my focus.

We don’t sell studies to larger firms that want a lot of fingerprints on the gun if things go wrong. If things go wrong for too long for my clients they are out of business. It tends to keep me–and them–focused very directly on revenue. We tend to focus much more on the “job to be done” by the product instead of constructing user personas.

Customer Interviews: Spend an Hour to Save a Minute

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

For customer interviews we have a rule of thumb that if an hour or research saves a minute early in the conversation it’s a good investment.  When you look at the list of questions you have prepared to learn about the prospect’s business and their needs, it’s easy to say to yourself, “I am really busy I can just ask these at the start to ‘set the table.’” But there are significant risks with this approach.

Preparations Cuts Risk Of Customer Interviews Ending Prematurely

While the interview may be nominally scheduled for 15 minutes or a half-hour and may run an hour if it goes well the first six minute or so  are critical to communicating that you have done your homework on their situation and their needs. If you start to ask questions that are already published on-line you can appear lazy or unprepared. If you can do research on a prospect in advance, it’s worth spending an hour to save a minute in the conversation. You can even start the conversation by saying “when I prepared for this conversation here is what I learned about your firm” and give a brief summary of what you know about their situation.

It’s OK to say “I see on your website that you have hired four people in the last three months, how has that impacted …” or “I read a profile of your firm in the San Jose Business Journal Book of Lists, have you grown beyond the 12 people listed in February?” This shows that you have done your homework and don’t want to waste their time but need to confirm some of the key facts that may bear on their needs.

Information Sources To Consult Prior To Customer Interviews

  • Do a thorough review of the prospect’s website.
  • Search for any articles in the last two years at least to see what kind of press coverage they have received.
  • Review the Linkedin profiles for the firm, the person you are talking to, and anyone with similar titles or in the same department.
  • Review on-line postings in relevant forums for the industry.
  • See if they have a blog, a twitter account, a YouTube account, and similar social media sits that are often used for business purposes.

Six Questions That You Normally Have to Ask In The Conversation

  1. Prospect’s description of the problem in their own words. This is rarely more than a sentence or two and capturing the essence in their own words is key.
  2. High level description of current work process or work flow in their own words. This forms the basis for any delta comparison or differentiation of your solution.
  3. Any constraints they mention: if you hear the same ones multiple times you will more than likely have to satisfy them.
  4. How they will tell that a new solution will leave them better off: this is different from asking them to specify the solution, it’s asking for “future state” or the end result they would like to achieve.
  5. What else they have tried to do to solve the problem: probe for why they were not satisfactory.
  6. Key metrics or figures of merit they would use to evaluate a new outcome.

Closing Thoughts

“A month in the laboratory can often save an hour in the library.”
F. H. Westheimer

Entrepreneurs seem to divide into two camps:

  • those who want to have a conversation immediately, and
  • those who are quite content to research for months as long as they don’t have to talk to strangers.

Striking a balance is the key to maximizing your learning from a customer interview. Effective research prior to the customer interview allows you to

  • Ask better questions
  • Provide evidence of your commitment to developing a mutually satisfactory business relationship
  • Detect when your prospect is leaving something out or perhaps coloring the situation too much. You are not a stenographer there to capture whatever they say without reflection, but if your only source of information is what they tell you then you risk “garbage in, garbage out” in your product plans and MVP.

Related Posts

Minimum Viable Product: Enthusiastically Proceed Skeptically

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

In a candid discussion about the challenges of managing your own expectations for a minimum viable product (MVP), Tristan Kromer observed, “It’s psychologically hard to enthusiastically proceed with skepticism.” And that is the challenge, we have to be enthusiastic about our product ideas to persevere to complete them and tell others about them, but we have to be skeptical enough to accept criticism and open to prospect perspectives on needs and constraints on solutions.

Strong Opinions Weakly Held

Bob Sutton blogged about this in 2006 as “Strong Opinions Weakly Held” as one of the differentiators between smart people and wise people. Both have strong opinions, but the wise can more easily allow revisions to theirs:

Perhaps the best description I’ve ever seen of how wise people act comes from the amazing folks at the Institute for the Future. A couple years ago, I was talking the Institute’s Bob Johansen about wisdom, and he explained that – to deal with an uncertain future and still move forward – they advise people to have “strong opinions, which are weakly held.”  They’ve been giving this advice for years, and I understand that it was first developed by Institute Director Paul Saffo.  Bob explained that weak opinions are problematic because people aren’t inspired to develop the best arguments possible for them, or to put forth the energy required to test them. Bob explained that it was just as important, however, to not be too attached to what you believe because, otherwise, it undermines your ability to “see” and “hear” evidence that clashes with your opinions. This is what psychologists sometimes call the problem of “confirmation bias.”

Early Adopters For Your MVP Are Often Very Normal

I think too many entrepreneurs conflate “early adopter” with “technically sophisticated’ or ‘geek hipster.’ Normal people are early adopters when they have a strong need for your product. The first two people to tell me about E-Bay, and who were genuinely excited about it, were two mothers who didn’t know each other but were collectors of different specialty handicraft items (teddy bears and glass angels) and they were shopping regularly there because they were not available in stores.

They were early adopters. I ignored their advice, of course, when I should have realized that neither used a computer for any other purpose than visiting E-Bay. They were early adopters. I should have realized that if E-Bay could create markets for these highly specialized products they could create and serve a lot of niche/specialty markets in a way that was winner take all.

Another example:  I think Pinterest looks a lot like the way that someone who creates scrapbooks or manages a physical bulletin board would want to author a website.

David Binetti On The Mind of the Entrepreneur

Written by Sean Murphy. Posted in Customer Development, skmurphy

In the mind of the entrepreneur the future is obvious and imminent. This  “reality distortion field” can be useful for making a better future possible, but it inclines the entrepreneur to minimize adoption risk–people will see the benefits of my product immediately and adopt it–and to be impatient. Customer development techniques allow you to identify expensive false positives for potential markets and to refine your approach.

I have been reviewing the presentations from Startup Lessons Learned 2010 and 2011 again and realized that I had never blogged about 2011 presentation “Lessons Learned Pivoting Votizen” by David Binetti (@dbinetti). His key take-away on the value of a customer development is that is helps the entrepreneur avoid expensive false positives, in particular the kind that can happen when you fall victim to your own reality distortion field and are overoptimistic about market risk.

Clip For The Mind Of the Entrepreneur

This clip starts at the 5 minute 40 second mark in David Binetti’s presentation at Startup Lessons Learned 2011 and gives a little context before “Phrenology of the Entrepreneur” slide shown below.

Slide For Phrenology Of the Entrepreneur

Here is the deck starting at the “Phrenology of the Entrepreneur” slide (19).

Related Posts

Update Aug-21: Source of the Phrenology Image this blog post from July 29 2008 on BzzAgent blog: Phrenology of the Entrepreneur

Having worked with several entrepreneurs throughout my career, I’ve noticed precisely nine common traits that unite them together and distinguish them from the rest of us. But what’s particularly interesting is this: just as these characteristics unify entrepreneurs into a discrete group, so too do they corral those who work for them into a community of their own. You see, entrepreneurs inadvertently create a culture in which the staff that survive bond over the realization that it is not each of them that is crazy.

Enter Exhibit A: This post. I wrote this post because our entrepreneur/leader constantly complains that too few blog posts are being submitted. I decided to write minimal text, and instead let the image speak for itself. After reviewing the post, our entrepreneur/leader informed me that “we” (another baffling entrepreneurial habit is to use plural pronouns when assigning tasks to an individual) need to add more text to make this post more about “the business” (code for “the entrepreneur,” himself?). So that’s what I am doing. And, in doing so, I have found myself reconsidering the image, itself. Perhaps the size of the rearmost lobe (labeled “self-esteem,” which was polite for “ego”), should be, err, adjusted.

 

Direct link to image http://www.bzzagent.com/blog/wp-content/uploads/2008/07/phrenology-of-the-entrepreneur.jpg

A Conversation With Tristan Kromer on B2B vs. B2C Customer Acquisition Challenges

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


Direct download from http://traffic.libsyn.com/skmurphy/Tristan_Sean_6-13-14b.mp3

Here is a rough transcript of the first five minutes or so to give you a flavor, I think you will find it interesting if you are wrestling with customer development or customer validation in an early market:

Sean: I am sitting here today with Tristan Kromer, we are going to talk about the differences between B2B an B2C customer acquisition methods.

Tristan: some consumer startups seem to latch onto a particular technique and apply it regardless of context. I am really interested in the different approaches you can use to find B2B customers and where the differences are between selling to consumer, small business, and enterprise.

Sean: B2B the outreach is tailored / artisinal, where the price point or deal value is above 5-10,000. Consumer startups feel this pressure to move to more scalable methods much earlier due. I know one piece of advice you always offering regardless of whether it’s consumer or business is to have conversations with prospects on an ongoing basis.

Tristan: always start face to face, even for consumer. What the consumer folks may call a “manual process.” Because that’s a much more rapid form of connect. Even if you want to have a highly automated sales process, you believe that consumers will see your hero image and read your FAQ and click on the purchase button, that’s a sales process. Your face to face conversation can be roughly analogous: demonstrate the the value proposition, answer questions and then you have an ask. By doing that face to face, analog vs. digital so to speak, you get a lot more feedback and can see when the prospect smiles, frowns, looks confused, etc.. You can apply that feedback to your digital process. For example, when I use this language consistently  it’s getting a much better response. Let me try that on a landing page.

Sean: there is a desire to create scale, to create the digital process, right away. For me it’s much harder to learn from when you have a lot of unknowns. The odd thing is that B2B stays more personal because above a certain deal size you cannot assume you can avoid a negotiation to be able to get the business. There are going to be several serious conversations and at least one serious negotiating session where the value of the transaction is above $10,000.

Tristan: there is also a bias to a longer term relationship on the large dollar B2B purchase. There is an expectation of support that is often not there in a smaller consumer purchase. There is a sense of “you are going to be guy we deal with when we have problems or renew.”

Sean: yes the salesperson has to be viewed as a point of service and as providing value. Your point about a “bias ot a long term relationship” was a good one: I think the enduring consumer brands pay a lot of attention to that as well. With startup sometimes there is so much focus on the ramp that sometimes unfortunately less attention is paid to reputation, brand, social capital, whatever you want to call it. It’s not so much “we have cool logo” but “our cool logo represents a promise that people can depend on.”

Tristan: I agree: it’s two different things. It’s esthetics vs. trust. You have repeated interactions with the firm and now you can
trust them. I have recently been doing some work with large brands and it’s amazing the impact that a trusted brand has on conversations with customers. There is an automatic assumption that it’s going to be a serious conversation.

Sean: does that work against experimentation? Because they feel that they are carying the brand they don’t want to be “too experimental?”

Tristan: it opens doors and you can have conversations that startups find much more difficult to secure. So there can be a bias towards a false positive. But as least you are having conversations you can learn from instead of trying to have conversations. I think you can be aware of the bias and manage for it. But there is fear of failure, but you can compensate for that with “off brand” tests where you don’t identify the brand.

Sean: we don’t do as much “I am from IBM” as “Charlie recommended that we speak to you” and they can check with Charlie and he will confirm it. Or I am a member of this community, I have presented at this conference, I have taken part in this working group. There is a brand effect for smaller startups, but it’s predicated on prior accomplishments or prior
relationships that can be re-activated or leveraged.


Here are some other interesting interviews with Tristan:

Customer Development Surveys Always Suck For B2B

Written by Sean Murphy. Posted in Customer Development, skmurphy

A customer development survey always sucks for B2B: have a conversation instead.

If you are selling to business and you tell yourself “my time is so incredibly valuable” I need to automate my interactions with prospects you are missing the point. The key challenge in the early market is to establish and maintain trust by listening, making and meeting commitments, and following up to very that your customers are satisfied. It’s not so much about punching the most important item on your task list as cultivating relationships with key customers, partners, and employees: all of these start with conversations and are built on trust

Once you are trying to validate what you think you have learned, start making good faith offers. Don’t start surveying more prospects, see if the firms you have already talked to are willing to buy. And if not,  learn why not in a conversation.

Practical tips for how to conduct B2B Customer Development Interviews

Startup Stages: Survive, Explore, Focus, Refine, Grow

Written by Sean Murphy. Posted in Customer Development, Design of Experiments, skmurphy, Startup Stages

Survive first. Explore second. Build third.

  1. Survive: It’s good to fail small and fail fast. But also make sure to survive the failure. It’s no good to fail if you can’t get up again.
  2. Explore: True exploration feels like zero progress. Everyone around you will tell you to focus. To stop messing around. To get on with it. The problem is, you need to find it first. This takes time and mistakes. In theory, this is all about fail fast, fail small. In reality, this is slow and painful.
  3. Build: Find a great solution to a small pain point. Then use that to grow bigger.

Tyler Michalski in “The Basic Basics

This reminds me of Rob Saric’s “Solvency First, Consistency Second, Growth Third”

2. Solvency First, Consistency Second, Growth Third
If you don’t have enough money to survive you die. [...] focus on ‘Minimum Viable Cash flow (MVC)’. Once you determine what the MVC is for both you and your team, work towards achieving that by whatever means you can. Consistency allows for predictability and the more predictable your business (‘X inputs results in Y outputs’) the faster you’ll grow.
Rob Saric in “Startups Are Hard

I think they are both right, I have tried to put integrate these two insights into our startup stages mode:

  1. Survive / Stay Solvent: This can involve the work/work balance of services and product development, the important thing is to generate enough cash flow to give your team the time to explore the market to find the right opportunity. This spans the “open for business” and “early customers” stages.
  2. Explore: I think you are looking for a fit with your talents, interest, and experience. Any opportunity has to pass the “why you, why now?” test. What is it that your team brings to the problem that will allow you to differentiate your offering? The fastest iteration cycle is to build as little as possible and simply measure (observe) and learn. Always start from measurement and observation so that you understand the problem and the customer before you worry about your solution. This also involves asking the right questions, talking with many people, and taking time to integrate all that you have learned. This spans the “idea and team formation” and early customer stages.
  3. Focus:  This is the first part of the “finding your niche” stage; selecting a candidate niche to focus on.
  4. Refine (Make Consistent and Predictable):  This is the critical step in finding your niche that allows you to leave exploration mode, or at least substantially reduce your exploration efforts. You have enough knowledge of your teams capabilities to build predictable processes and of the customer’s needs to predict their reactions and identify prospects you should focus sales efforts on early in the engagement process.
  5. Grow: now you enter the scaling up stage because you have useful diagnostics and predictable processes.

Distilling Rules of Thumb From Entrepreneurial Experience

Here are some additional blog posts on distilling rules of thumb from entrepreneurial experience:

More From Rob Saric

More from Rob Saric’s (@RobSaric) blog, his core beliefs linked to relevant articles on his site:

We Help Teams of Experts Find Leads and Close Deals

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

If you have demonstrated domain knowledge and expertise, a plan for having a significant impact on a customer problem, and are in the process of exploring the early market for your offering or trying to build on a handful of early customers, we can help find leads and close deals.

The majority of our clients are teams of two to five engineers or scientists who are bootstrapping, but we have also helped larger firms–even some in the Fortune 500 as well as large non-profits–where they wanted help exploring a new market.

We are very comfortable helping teams refine their product concept with discovery conversations, probes, and experiments. We help you make sense of the information you have, build models, and craft a plan of action for next steps. In particular we help you lead generation and negotiation to close of early reference accounts for new products. If your goal is to sell to businesses in a subscription or long term relationship model where the three year value of their new customer is at least $25K then you are a typical client–obviously your initial deal sizes may be less but your goal is still to provide enough value to justify that price point or higher.

Startup Stages Model

The model we follow is  our “Startup Stages”  which spans from the pre-incorporation idea stage to scaling. We have helped  a number of teams come together and assisted them from idea stage to open for business stage to finding and focusing on a niche.

Getting Acquainted

To get acquainted join us at a Bootstrappers Breakfast in Silicon Valley or sign up for Office Hours. We offer public and private workshops and Mastermind groups in addition to consulting support.  If you are bootstrapping and can identify a monthly budget we can find a way to work with you.

Tristan Kromer: You Can Tell a Good Advisor by Their Questions

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

Three interesting answers from Tristan Kromer’s interview with the folks at Startup Commons

Startup Commons: What’s the best way to get started?
Tristan Kromer:  Find someone you really want to help. Someone in pain. That’s your vision. Helping someone and solving a real problem. Find team members with complementary skill sets who are able to challenge your perspective and add their own. Go talk to customers.

I think this is the best anchor for starting a new firm: focus on a need or  a pain experienced by a particular  customer. Pick a problem you are willing to work on for a while because nothing new ever works and it’s going to take a while to figure out all of the elements of a successful business. A few firms with a serious problem are a better start than many firms with a small problem, although the latter may be easier to find, the former are far more likely to take action.

Startup Commons: How to find a good mentor for your startup?
Tristan Kromer: Look for someone who doesn’t give you their opinion but instead challenges you with questions that makes you think.

I agree with Tristan it’s in the questions but like Conor Neill’s formulation: it’s “80% Diagnosis and 20% Prescription.” A good mentor will suggest some courses of action to consider after they have helped you to explore the constraints and implications of the situation–or insurmountable opportunity–you are wrestling with.

Startup Commons: Who are your mentors?
Tristan Kromer: My team is my mentor. The customer is my mentor. My friends are my mentors. I rely on other people to challenge my perspective. People like Sean Murphy, Spike Morelli, Laura Klein, Nick Noreña, Zac Halbert, Janice Fraser. People who are willing to question me or tell me I’m wrong.

I think this is the next step in the evolution of the Lean Startup movement, it has to become a community of practice where entrepreneurs at differing skill levels can compare notes , challenge each other and hold each other account.  It’s a mistake to look at the early writing by Eric Ries and Steve Blank as scripture, it’s a good start that we will be refining and extending for decades. There is also earlier work by Peter Drucker, Edward McQuarrie, Rita McGrath, Saras Sarasvathy, Mark Leslie, Clayton Christensen, Russell Ackoff, Dave Snowden, and Gary Klein–just to name a few–that for the most part is not as well appreciated by entrepreneurs as it should be.

“A prudent question is one-half of wisdom.”
Francis Bacon

Related Posts:

Here are four checklists we often take entrepreneurs through

What is Lean? Lean Innovation 101 on May 27, 2014

Written by Theresa Shafer. Posted in Customer Development, Events

Linked-CXO-Forum-LinkedInSean Murphy is honored to speak at Linked CXO Forum on Tuesday, May 27th, 2014 at Haworth Showroom in San Francisco, California. Linked CXO provides networking for senior executives – “Bosses Need Professional Development, Too.”

“Lean” provides a scientific approach for creating a product and developing new businesses. Teams can build products or services to meet the needs of early customers by adopting a combination of customer development, business-hypothesis-driven experimentation and iterative product releases.

Tuesday, May 27th, 2014

11:30am-1:30pm, San Francisco, California

RSVP is required.  SIGNUPbutton

Key Takeaways:

  •     Why more and more companies are using Lean
  •     What is Lean; What it is Not
  •     Rules of thumb for successful lean innovation

Key concepts:

  •     Get out of your BatCave
  •     Use an initial product (MVP) as a probe to explore the market
  •     Build-measure-learn
  •     When and how to pivot

Speaker: Sean Murphy, CEO of SKMurphy, Inc., 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 Lean Startup Conferences. SKMurphy’s clients have offerings in electronic design automation, artificial intelligence, web-enabled collaboration, proteomics, text analytics, legal services automation, and medical services workflow. Sean holds a BS in Mathematical Sciences and an MS in Engineering-Economic Systems (Management Science) from Stanford University.

Don’t Ask Your Next Question Before You Learn From the Last Answer

Written by Sean Murphy. Posted in Customer Development, Sales

Interviewing Tip #5: Run An Interview, Not A Conversation
“I once listened as one of my colleagues conducted and interview that made me cringe. It sounded more like two old friends catching up more than anything. “Aren’t you suppose to be gathering information?” I thought, but his mistake is not uncommon, especially in our climate of approachability and human business. But, as the interviewer, your job is to lead the conversation, not participate in it.”
Garret Moon in “How to Interview Your Users and Get Useful Feedback

If you find yourself talking with a prospect for a few minutes and you are not getting any questions back from them then your discovery conversation may have deteriorated into an interrogation.

My goal in a discovery interview is to have a serious conversation about issues, needs, constraints, and goals. There is a risk an interview can become a casual conversation, but casual conversation is a very useful method for establishing rapport: context matters.

I work in B2B markets where my key objective in a discovery conversation is to understand the other person’s situation in a manner that also lays the foundation for a potential business relationship. If you “gather data” using an interview style that leaves the other party without any desire to do business with you then you will not succeed in a B2B market.

Moon includes a pull quote:

“Interviews are different from conversations. We’ll use a relaxed tone, but we are purposefully guiding the interaction, often thinking several questions ahead.”
Steve PortigalInterviewing Users

While it’s a good idea to think several questions ahead, I worry that too much focus on getting your pre-planned questions answered may suppress learning: you may be following a track laid down before the customer said something surprising that merits an improvised exploration.

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

Q: How Much Attention Should I Pay To Potential Competition?

Written by Sean Murphy. Posted in 3 Early Customer Stage, 4 Finding your Niche, Customer Development, skmurphy

Q: When I introduce the idea for my business a lot of my friends are quick to ask: “are you sure there is no one else doing this?” In today’s fast and disruptive business world, I think it is very hard to come up with a business idea that is 100% unique, and utilizes a completely new set of technology features. I constantly find myself arguing that it doesn’t matter if someone else also has the same startup or business idea, it’s how you go about executing your business idea that matters.

What are your thoughts on competitors and how put off should I be when I find out another company has a similar product and mission to my startup?  

Your friends are trying to help you but you may be asking them to comment on a problem where they have little expertise. Evaluating a new business idea is challenging even for professional investors and firms already in the target market–how many times have new entrants been underestimated or new technologies view as far more promising than they turned out to be. It’s a hard problem.

You are being encouraged to look left and right at potential competition, I would try and walk around the table and look at the situation from your prospect’s perspective.

Perhaps a more important set of of question for  B2B are:

  • What is your prospect doing now to solve the problem?
  • Are they satisfied with their current solution or do they still view this a critical business issue?
  • What other solution options are available to them?
  • Which of these other options have they also evaluated and rejected and why have they done so?
  • Are you providing a capability or solution for what they consider a critical need.

Execution only matters in the context of a particular category of customer with a distinct and identifiable problem or need.

Working to develop new capabilities when it’s not clear who will pay for them may give you the illusion of progress for a while but ultimately won’t let you build a business.

My suggestion is to pay close attention when prospects ask you to explain why your product is superior or at least different in some useful ways from what they are currently using or have available to them.

My question is why are you talking to your friends instead of having serious conversations with prospects? What are your prospects asking for or telling you?

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:

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