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Lean Start-up Part IV

It has been awhile since I've updated the progress on a very lean startup I'm helping out.  Last time out I briefly discuss our first engagement with customers through personal interviews and surveys.

I am pleased to report our first failure.  : )

According to our surveys and interviews, our assumptions regarding who will be willing to pay for what appear to be wrong.  (I might add, too, that the feedback seems to be running exactly opposite of the expert advice the company heard while going through a local mentoring process.)

So now that we've got our answers, we're ready to go to market, right?

Just kidding.  Customer Development principles dictate that upon failure we iterate.  So I am now rewriting our assumptions and we will start a new round of interviews.  With respect to the "who," it's clear to me we have not found our early adopters. Unfortunately for the "in-the-building," "I think I'll build an online survey," aficionados among us, we have to put on our business development hats and hit the pavement.

I like the fact that the necessity of reaching beyond his impressive array of friends and families makes the CEO a bit uncomfortable.   In a great talk, Seth Godin says (h/t Dan Martell):

If you're not upsetting anyone, then you're not changing the status quo

Albeit in a different, #leanstartup context, I'd argue:

If you're not upsetting yourself, then you're not challenging your assumptions

With respect to the "what," we have struggles there as well.  As a self-taught product manager working with a traditional Engineering executive, we are constantly fighting the propensity to become enveloped by the feature miasma.  We spent a couple of weeks investigating platforms, while in parallel, defining and creating mock-ups for developing from scratch, in-house.

I won't go into the debate here, but suffice to say, it's quite difficult to evaluate platforms without delving into feature minutiae.  The fear is, of course, that the wrong decision is going to screw us in the future.  The reality is likely to be, however, that success of the product will force a future decision and we will be happy to be in that position, even if we have to rebuild.  In other words, the platform decision we make now will not determine failure or success of the product, because either path will work to create the product.  The current objective is minimum viable product (MVP), not scalability, best-of-breed, most features, ease of development, best product support, etc.    The decision today needs to be made based on today's objectives.  (These are not impromptu, however, but rather are defined (MVP) and tied to larger business objectives.)

In the end, we believe that time and money dictate that the  opensource platforms will best provide the best path to minimum viable product.  We will need to stitch them together, make them look good, and build the ability to monetize.

As we begin to make features public to "friends of the company," our primary challenge is to figure out which functionality to monetize.   Based on our last round of interviews, we have some pretty good ideas.  The primary challenge we face here is the understandable, but misguided (IMO) feeling among some to offer for free, what can potentially be monetized.   The idea is driven by the fear that we need to create participation to provide value and forcing users to pay will dampen participation and therefore lessen value.

There is certainly truth in that.  But I've always found it more difficult to charge for something after it was first offered for free.   Someone somewhere wrote about the huge gap between Free ->1$ and 1$ -> 2$.

In a freemium business model, however, success depends on free, as well as paid.  You have to offer compelling value for free.  Making paid content free doesn't change that equation.  So in the final analysis, making paid content free tests neither free nor paid!

Proposed solution is free version vs free trial (x months, w/o taking credit card).

Unfortunately, decision-making is often driven by fear.  Fear of making the wrong decision can lead to making no decision at all.  Typically only the latter is a death knell.  There's an old sales adage that says the worst answer a customer can give is maybe.  When facing decisions, the worst action is not making a decision.  More on decision-making here.

Thoughts?

Updated: In comments, Sean Murphy kindly provides the post I referred to above regarding the gap between Free ->1$ and 1$ -> 2$.  Please go read Josh Kopelman's excellent post.

5 COMMENTS ON THIS POST To “Lean Start-up Part IV”

  1. Sean Murphy May 14, 2009 at 5:54 pm

    Great post. Customer development involves as much “self debugging” to revisit and remove false assumptions and mistaken perceptions as debugging code.

    “Someone somewhere wrote about the huge gap between Free ->1$ and 1$ -> 2$.”

    I think you are referring to a great post by Josh Kopelman entitled “The Penny Gap.” It’s at http://redeye.firstround.com/2007/03/the_first_penny.html

    I like “the irrevocable commitment of resources” as a working definition for a decision, I don’t there are “reversible decisions.” I think that they can be updated, but not “undone” in a cost-free manner. This definition also captures that indecision is the worst kind of decision to make.

    As to “maybe” as an answer it’s a “no” from an early stage prospect. Unless they express clear requirements or conditions that need to be met.

    Great post that captures the uncertainty of new product introduction and crisp analysis required for early market exploration.

  2. Greg Schnese May 15, 2009 at 4:46 am

    Hi,

    Im new to this blog so forgive me if this question is answered in another post. Could you please expand on your customer dev methodology? I’m running customer dev at my startup. I’m comfortable getting out of the building and talking to customers. I’m looking for more structure (best practices) for customer dev.

    I’m moving on to the next post now!

    Greg

  3. Brant Cooper May 15, 2009 at 2:27 pm

    Hello Greg,
    Thanks for the comment. Have you purchased Steve Blank’s book The Four Steps to the Epiphany? He has the methodology all laid out. Be sure to check out his blog, as well. Also, his courses are available at VentureHacks. All that being said, if it would be of value to people, I’d be happy to go into specifics on how I applied the methodology. Let me know!

  4. Greg Schnese May 15, 2009 at 2:33 pm

    Hi Brant,

    Steve’s book, check, blog, check, VentureHacks lectures, check! For me, I’ve found a ton of resources, now I’m looking to see how others applied the methodology. It’s like driving, you can read how to drive, but actually sitting behind the wheel is different.

    After going through customer dev, what did you learn in terms of process? Did you get a bunch of false negatives or positives? Did you go after your target demo, if so how? How many people did you talk to in total? Per month? Per week?

    I’d be happy to add my $.02 also.

    Greg

  5. Brant Cooper May 15, 2009 at 2:33 pm

    Thanks for the comment, Sean! I will update the post with Kopelman’s post — it is a great read. I agree decisions are not reversible. But I think that one should be careful about emphasizing the costs, including the opportunity costs, because that may amplify the fear, leading to equivocation, etc. So right, the decisions are not reversible, but that spending time and money on executing the wrong decision is not catastrophic as long as you 1) learn and 2) don’t repeat.

Tell me what you think!

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