Veterans Day 2016

Written by Sean Murphy. Posted in Favorites, skmurphy

A thank you on Veterans Day 2016 to all of the men and women in our armed forces who made the United States possible, in particular this  Silicon Valley oasis of invention and innovation I get to call home. Some quotes to meditate on follow.

Newsletter: Customer Discovery Interviews

Written by Sean Murphy. Posted in 3 Early Customer Stage, Customer Development, Favorites, skmurphy, Startups

SKMurphy Newsletter
for October 2015

This blog post summarizes our October newsletter, you can subscribe to the monthly SKMurphy newsletter using the form at the right

Customer Interviews

Customer Discovery interviews are key to discovering whether or not a market exists for your product or service and the skills and questions you hone in the early market will continue to be refined as you scale. This month we focus on how to start them, techniques for cultivating your curiosity so that you learn as much as possible, and some suggestions for how to review and organize your findings on an ongoing basis.

Scaling Up To a High Reliability Organization

Written by Sean Murphy. Posted in 4 Finding your Niche, 5 Scaling Up Stage, Favorites, Rules of Thumb, skmurphy, Startups

Randy Cadieux, founder of V-Speed LLC, started to post some interesting articles in the Lean Startup Circle Group on LinkedIn in June of this year, in particular his “Working on the Edge of Failure.” High reliability organizations have a lot to teach startups so I decided to reach out to him to compare notes. This led to some great conversations and a recorded sessions that we have transcribed into this edited transcript–with some hyperlinks added for context.

Good and Bad Reasons to Pivot

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, 3 Early Customer Stage, checklist, Favorites, Intrapreneur, Lean Startup, MVP, skmurphy, Startups

Much has been written about a startup making a pivot in direction after Eric Ries first coined the term
in a 2009 blog post “Pivot don’t Jump to a New Vision.” The word pivot has attracted almost as much wordplay as the word lean.  What follows is a short list of good and bad reasons to pivot.

Difference Between a Hypothesis and an Assumption

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, 3 Early Customer Stage, Favorites, Intrapreneur, Startups

The difference between a hypothesis and an assumption is that the first is normally explicit and the second implicit. A hypothesis is what is being tested explicitly by an experiment. An assumption is tested implicitly. By making your assumptions as well as your hypotheses explicit you increase the clarity of your approach and the chance for learning.

Three Great Books on Generating Innovative Business Ideas

Written by Sean Murphy. Posted in 1 Idea Stage, Books, Favorites, Intrapreneur, Startups

These three books contain a wealth of useful suggestions for generating innovative business ideas from observing, questioning, and networking with customers and others:

  • The Innovator’s DNA” by Christensen, Dyer, and Gregerson outlines a set of five skills that innovator’s use to develop entrepreneurial ideas: questioning, observing, networking, experimenting, and associating. They offer a number of suggestions for how to cultivate these skills. But even their formulation assumes a fair amount of iteration as candidate ideas are developed, tested, recombined to create novel value.
  • Customer Visits” by Edward McQuarrie goes into extensive detail about techniques and strategies for interviewing business customers not only to refine existing offerings but to identify new product opportunities.
  • Innovation and Entrepreneurship” by Peter Drucker suggests that you develop innovative business ideas by searching for changes that have already occurred but where the full effects have not been felt.  In particular in “Innovation and Entrepreneurship” he lists seven sources for innovative ideas in decreasing order of importance:
    • The Unexpected (e.g. unexpected success or failure of an existing product or service)
    • The Incongruous
    • Weak Link In Existing Process
    • Industry Or Market Structure Change
    • Demographics: Size, Age Structure
    • New Zeitgeist: Perception, Mood, Meaning
    • New Knowledge

Related Posts on Developing Innovative Business Ideas

Pretotyping – Techniques for Building the Right Product

Written by Sean Murphy. Posted in 1 Idea Stage, 4 Finding your Niche, Books, Favorites, Rules of Thumb, skmurphy, Startups

Alberto Savoia defines pretotyping as determining that you are “building the right product before you invest in building your product right.” His book “Pretotype It” (Second Edition available as a Free PDF or on Kindle for $0.99) lists a set of seven techniques for pretotyping on pages 39-40. This post analyzes and elaborates on the techniques from the book (bold text is from the book) and then offers five additional ones that should be included.

Seven Basic Pretotyping Techniques

  1. The Mechanical Turk – Replace complex and expensive computers or machines with human beings.
    Also known as

    • starting with a service
    • wrapping a thick protective blanket of consulting around your product so that no one is hurt by it
    • selling the holes not the drill
    • Wizard of Oz (pay no attention to the man behind the curtain).
    • Flintstoning (Fred Flinstone’s feet powered his “car”).
    • Manualating (a backward formation from automating)
    • the concierge method
  2. The Pinocchio – Build a non-functional, “lifeless”, version of the product.
    Useful for form and fit validation. Jeff Hawkins famously carried around a block of wood to get an appreciation for what a PDA might feel like.
  3. The Minimum Viable Product (or Stripped Tease) – Create a functional version of the product, but stripped down to its most basic functionality.
    A basic approach for any bootstrapper – make sure you have the simplest offering that customers are willing to buy before you worry about adding features (and delaying time to break even revenue).  In reading this Savoia is using the Marty Cagan MVP model “smallest possible product that has three critical characteristics: people choose to use it or buy it; people can figure out how to use it; and we can deliver it when we need it with the resources available – also known as valuable, usable and feasible.”
  4. The Provincial – Before launching world-wide, run a test on a very small sample.
    Start in a niche. When in doubt zoom in for traction.
  5. The Fake Door – Create a fake “entry” for a product that doesn’t yet exist in any form.
    I am not a fan of this except in very limited circumstances for B2B markets as it can be very corrosive to the trust required to built a long term business relationship. And at least with software products for business, a longer term relationship is normally intrinsic to the customer’s calculation of the value of your offering. If you start to erect “Potemkin village” products that have too many false fronts or facade items in your menus and options prospects may doubt the entire offering.
  6. The Pretend-to-Own – Before investing in buying whatever you need for your product, rent or borrow it first.
    Find a way to use tooling or equipment before committing to  a significant purchase.
  7. The Re-label – Put a different label on an existing product that looks like the product you want to create.
    Often a more complex product can have menu items deleted or entire branches of a menu tree pruned to explore whether this is a market for a simpler offering. At Cisco we didn’t stuff two connectors on a four port router and changed the paint job to create a “lower cost” model until the box could be re-designed.

Five I Think Should Be Added

  • The holodeck – simulate the effect of a product on a workflow: understand where the next bottleneck is to determine how much benefit eliminating one or more steps (or reducing one or more category of error) will actually yield. This is the default method for “system on a chip” design approaches but I suspect we will see more service workflow simulations as a part of the development of new service offerings in the future.
  • Family Tree – verify that manual implementations exist for what you plan to automate, has someone written an Excel macro (or an EMACS macro)  to solve the problem. Are people already following a checklist to prevent a category of errors? Replacing workarounds involves less behavior change (at least in terms of a customer’s view of the real problem) than getting them to try something without antecedents.
  • “What’s On Your Mind” – understand the customer’s view of the problem and the constraints your solution has to satisfy before proposing one.  This normally requires an active curiosity about the customer’s perception of their needs.  This is not the same as asking them for features and implementing them without considering the deeper implications.
  • Picnic in the Graveyard – do research on what’s been tried and failed. Many near misses have two out of three values in a feature set combination correct (some just have too many features and it’s less a matter of changing features than deleting a few). If you are going to introduce something that’s “been tried before” be clear in your own mind of what’s different about it and why it will make a difference to your customer.
  • Want Ad – ask customers to write up a job description with a focus on “results to be achieved” by your product. Clayton Christensen calls this the “jobs to be done” model for a new produce (See also Chapter 3 from Innovator’s SolutionWhat Products Will Customers Want to Buy

Savoia Adds “One Night Stand”

In workshops given after the second edition was published Savoia has added a new technique: The One Night Stand. Primarily aimed at retail innovation it says you can create “a complete service experience without the infrastructure required by a permanent solution.  Here are some details from the  “Pretotyping Cheat Sheet” by Leonardo Zangrando (leonardo@pretotype.co.uk):

  • How: Deliver target customers the real experience in an extremely narrow geographic scope and time frame.
  • Why: Avoid large infrastructure investment until validating market interest and actual use.
  • Where: In the same real-life situation where the innovation will be used but with limited time and geographic scope.

Three situations where this is most appropriate:

  1. The solution is-or depends critically upon–an interactive service experience
  2. You expect demand for the offer will be sensitive to the choice of channel, and you need to test a number of possible customer interception points
  3. You want to validate a large homogeneous market before scaling up

I think this is an intelligent elaboration on what was called “The Provincial” in the second edition but it’s particularly appropriate where a specialized facility can be replaced in a trial for a temporary setup (e.g. a tent in the parking lot of an existing store, a stall in a farmers market, a rented facility in preference to building your own before you have determined there is a need).

Related Articles and Blog Posts

Tips for B2B Customer Development Interviews

Written by Sean Murphy. Posted in 1 Idea Stage, 3 Early Customer Stage, 4 Finding your Niche, Customer Development, Favorites, Startups

Office Hours: MVP Readiness ReviewThis post on customer development interviews is one of my most popular. If you would like help preparing for customer development interviews or reviewing results from recent interviews please sign up for a no cost no obligation office hours session and I will be happy to help you rehearse or de-brief. Here are my lessons learned from taking part in interviews where the startup planned to offer a product or service to a business.

3 Equations & 3 Unkowns: Target Customer is Key Initial Value

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, 4 Finding your Niche, Customer Development, Favorites

I mentioned in “3 Equations 3 Unknowns:  Customers, Features, and Message” that we spend a lot of time on the early customer stage. It requires 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:

  1. Are you talking to the right people?
  2. Do you have the right features?
  3. Do those features translate into benefits that are going to be useful to them?

The customer discovery interview process can be tough to master. You are trying to determine if the customer has a problem that they will pay you to solve with your technology: do you have the right features and do those features translate into useful benefits.

But we actually see team often go wrong with the first question: are you talking to the right people. And this error is much harder to recover from. You can do a poor job interviewing the right prospect and get some feedback that allows you to iterate. But a great job interviewing the wrong prospect will tell you very little. Improving targeting, or at least validating you can identify a prospect, has a big impact.

When someone is describing their offering at the a Bootstrappers Breakfast we will often take them through the “Three Question Test” as a group exercise. We will say,

“OK, we have assembled a brain trust for you this morning, you have 12 people around the table who would like to help you. Please give us three questions that have yes, no, or number answers and tell us the combination that would indicate that you could offer the person they are talking to clear value.”

It’s harder than it looks. Most folks start with  something like “Do you want to save money on your car insurance.” This question is worthless. Any question that you can append “, you moron” to the end of is not a good question because it does not disqualify anyone (I suppose if you didn’t own a car you would not want to save money on your car insurance). The next iteration tend to start out much too broadly, ignoring geography, industry, customer firm size (whether measure in headcount, revenue, or some other transaction count), title(s) of buyer, and pain points that are actually symptoms that a potential customer is experiencing.

On this last point you don’t go to your doctor and say “I think I have diabetes” you say “my vision is sometimes blurry and I am getting really thirsty and I feel tired all the time.” Business prospects don’t want “a better website” they want “more leads from their website” or “fewer calls to the hotline–because the website allows customers to solve their own issues.”

Saras Sarasvathy’s Effectual Reasoning Model for Expert Entrepreneurs

Written by Sean Murphy. Posted in 1 Idea Stage, 4 Finding your Niche, Customer Development, Favorites, skmurphy, Startups

Update Feb-24-2011: Since I first wrote this in 2010 the Effectuation.Org site has been considerably upgraded and contains a lot more information on Saras Sarasvathy’s research.

Recapping ideas, papers, and books that had changed my life yesterday reminded me of Saras Sarasvathy’s Effectual Reasoning Model from her 2001 paper “What Makes Entrepreneurs Entrepreneurial” (There is a reference on the Khosla Ventures site at “What Make Entrepreneurs Entrepreneurial” with an annotated PDF version)

Entrepreneurs Rely on Effectual Reasoning

Effectual reasoning, however, does not begin with a specific goal. Instead, it begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they interact with.

Effectual thinkers are like explorers setting out on voyages into uncharted waters.

All entrepreneurs begin with three categories of means

  1. Who they are–their traits, tastes,and abilities;
  2. What they know–their education, training, expertise, and experience
  3. Whom they know–their social and professional networks.

Saras Sarasvathy in “What Makes Entrepreneurs Entrepreneurial.

In our “Idea to Revenue” Workshop we talk about three kinds of capital that startups begin with: intellectual, social, and financial. We don’t call out what she refers to as “human capital” or “who they are–their traits, tastes, and abilities” as a resource but instead encourage teams to “begin in phase two.” That is, to build on prior accomplishments and long term interests so that early customers view the startup as a continuation of earlier efforts and focus.

But I like this model of bootstrapping entrepreneurs as foragers: living off the land as hunter-gatherers until they can find a market to homestead. Bootstrappers have to start from where they are and search for opportunities. Pasteur advised that “Chance only favors the prepared mind” so you have to open yourself up to possibilities and be prepared to be surprised (which is another way of saying you have learned something new). Some more quotes from her paper:

Using these means, the entrepreneurs being to imagine and implement possible effects that can be created with them. Most often they start very small with the means that are closest at hand and move almost directly into action without elaborate planning.

Plans are made and unmade and revised and recast through action and interaction with others on a daily basis. Yet at any given moment, there is always a meaningful picture that keeps the team together, a compelling story that brings in more stakeholders and a continuing journey that maps uncharted territories.

Eventually certain of the emerging effects coalesce into clearly achievable and desirable goals–landmarks that point to a discernible path beginning to emerge from the wilderness

Seasons entrepreneurs, however, know that surprises are not deviations from the path. Instead they are the norm, the flora and fauna of the landscape, from which one learns to forge a path through the jungle. The unexpected is the stuff of entrepreneurial experience and transforming the unpredictable into the utterly mundane is the special domain of the expert entrepreneur.

Saras Sarasvathy in “What Makes Entrepreneurs Entrepreneurial.

One of the reasons that we run the Bootstrapper Breakfasts as 90 minute unconferences–where folks introduce themselves and put issues on the table they would like to discuss–is that it keeps everyone in an entrepreneurial frame of mind:

  • When you hear someone describe a challenge that they are facing, it gives you much better insight into their thinking and allows you to evaluate what they might be like to work with.
  • Often as not they are describing a common problem, or aspects of a common problem. Hearing their perspective just on the problem can give you new insights into how to solve it.
  • It’s good practice to learn how to ask for advice and insight. Entrepreneurs need to do a lot of that in the early market especially.
  • Explaining how you managed an issue or situation can deepen your understanding of you solution, it forces you to put it into terms others can use and understand. This is good practice for scaling up (e.g. adding your first employee).

Sarasvathy stresses the cooperative nature of entrepreneurship in the paper, a perspective that I share. Often an entrepreneur is attempting to obsolete an aspect of the status quo, but they have much less competition and much more opportunity for collaboration than is appreciated.

Markets are stable configurations of critical masses of stakeholders, who come together to transform the outputs of human imagination into the forging and fulfillment of human aspirations through economic means.

Effectual reasoning may not necessarily to increase the probability of success of new enterprises, but it reduces the costs of failure by enabling the failure to occur earlier and at lower levels of investment.

Entrepreneurs are entrepreneurial, as differentiated from managerial or strategic, because they think effectually; they believe in a yet-to-be-made future that can substantially be shaped by human action; and they realize that to the extent that this human action can control the future, they need not expend energies trying to predict it. In fact, to the extent that the future is shaped by human action, it is not much use trying to predict it–it is much more useful to understand and work with the people who are engaged in the decisions and actions that bring it into existence.

Saras Sarasvathy in “What Makes Entrepreneurs Entrepreneurial.

Saras Sarasvathy on 3 Key Differences In Effectual Reasoning

Saras Sarasvathy highlights three key differences between effectual reasoning and traditional startup management models:

  • Risk taking
    • Traditional: expected return, work the plan to deliver results to your investors (“Ready Aim Fire” can become “Aim–not big enough–Aim–not big-enough–Aim…”).
    • Effectual: affordable loss, make many small mistakes as early and cheaply as possible to speed learning (“Ready Fire Steer“)
  • Focus:
    • Traditional: competition
    • Effectual: strategic partnership (especially with early customers)
  • Value Creation
    • Traditional: rely on pre-existing knowledge to aim for a known market you can dominate and exploit
    • Effectual: leverage contingencies; create opportunities as you map a new market

She goes into some detail on the “affordable loss principle” and offers extracts from an interview with an expert entrepreneur’s approach to a new market:

While managers are taught to analyze the market and choose target segments with the highest potential return, entrepreneurs tend to find ways to reach the market with minimum expenditure of resources such as time, effort, and money. In the extreme case, the affordable loss principle translates into the zero resources to market principle. Several of the expert entrepreneurs I studied insisted that they would not do any traditional market research, but would take the product to the nearest possible potential customer even before it was built. To quote but one of them, “I think I’d start by just… going… instead of asking all the questions I’d go and say.. try and make some sale. I’d make some… just judgments about where I was going — get me and my buddies — or I would go out and start selling. I’d learn a lot you know..which people.. what were the obstacles.. what were the questions.. which prices work better and just DO it. Just try to take it out and sell it. Even before I have the machine. I’d just go try to sell it. Even before I started production. So my market research would actually be hands on actual selling. Hard work, but I think much better than trying to do market research”.

In finding the first customer within their immediate vicinity, whether within their geographic vicinity, within their social network, or within their area of professional expertise, entrepreneurs do not tie themselves to any theorized or pre-conceived “market” or strategic universe for their idea. Instead, they open themselves to surprises as to which market or markets they will eventually end up building their business in or even which new markets they will end up creating.

Saras Sarasvathy in “What Makes Entrepreneurs Entrepreneurial.

This is also an approach that favors older entrepreneurs to the extent that they have larger social networks (based on more shared work experience with more people) and deeper professional expertise. The one caveat is that they have to be open to new possibilities and not be blinded by what they “know” to be true in the face of new information.

SKMurphy Perspective

This 2001 paper offers another perspective on bootstrapping entrepreneurship that is independently derived and predates “Four Steps to the Epiphany (2003)”, “Blue Ocean Strategy(2005)”, and the “Sales Learning Curve (2004).” While all four are clearly addressing different aspects of the same core paradigm that takes a scientific or hypothesis driven approach to new products and new markets, I find Sarasvathy’s offers the best perspective.

I will leave with two final quotes from the paper which highlights the value of establishing enduring relationships.

Expert entrepreneurs […] are actually in the business of creating the future, which entails having to work together with a wide variety of people over long periods of time.  [They fill their future] with enduring human relationships that outlive failures and create successes over time

This is largely ignored in our entrepreneurship curricula which tend to focus on market research, business planning, new venture financing and legal issues. As far as I know no entrepreneurship programs offer courses in creating and managing lasting relationships or stable stakeholder networks, nor on failure management.

Saras Sarasvathy in “What Makes Entrepreneurs Entrepreneurial.

Related Blog Posts

Understand, Believe, and Act

Written by Theresa Shafer. Posted in Books, Consulting Business, Favorites, Sales, Startups

The sales process may seem like a simple exchange – you convince a prospect to accept your product or service in exchange for their money. However, there are a number of overlapping processes running to get you to that point.

A few thoughts about one of them: the process that prospects go through to decide if they are going to buy from you. Jerry Weissman has framed this as Understand, Believe, and Act.

First a prospect must understand what you have to offer. This is straightforward when your product is a better, faster, cheaper version. But this is much more difficult when it is an innovative technology. Demos and sales pitches become critical. We joke that “If you are looking for smarter prospects who will understand your offer, then maybe your demo sucks!” Sadly, this is often the case (we have even had to apply it to our pitches from time to time).

Presenting an innovative technology in a way that’s understandable to a prospect is never easy. The language, the problems, and why it is better must be grounded in the prospects world. If you give a prospect a feature list, some will be able to “get it”, but not many. To reach most prospects, you must start from a problem that they know they have, and offer a solution they can understand.

Secondly, prospects must believe that your innovative technology will actually deliver them the benefits you promise. New technology always brings risk. They may risk losing their job–or at least putting a “dent in their career”–if you don’t deliver! The first people who will trust you are folks with whom you already have a prior shared success. They know you can deliver. Usually these people are the source for your early sales. When your first clients say “I used it and it worked” to their friends they give you credibility. Eventually you must get to strangers referring other strangers to buy. Testimonials on your website are critical for prospects believing your claims. Testimonials, like your demo, must be in the language customers use and from people who are credible.

Only after they understand and believe will customers ever act. But they act on their own cycle, whether it’s a certain point in the product development process, a certain time of year, or a phase of the moon. It’s their timing! Your challenge is to make sure they remember your offering when they are looking for it. For this reason you need a method of reminding those people that you have a solution. We call this percolating. This is the function that applications like Salesforce provide: you can set up a sales campaign to remind you to contact everyone who is percolating every 6 weeks or so (or whenever they wanted to hear back from you next). Another method we have seen work well are newsletters. If you can help your prospect and send them something useful every 6 weeks, people will join the mailing list and remember you when they have a problem you can help them solve. Be there when they are ready to act.

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