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Brants Rant

Innovation: Disruptive, Sustaining or Rippling?

The Innovator’s Dilemma not only forms the foundation of Lean Startups and Customer Development, but has brilliant analysis on the role of disruptive vs sustaining innovation in large successful businesses. In a nutshell, big successful companies successfully adopt sustaining technologies that maintain a steady trajectory of performance/cost improvements. These same companies, however, fail to adopt disruptive technologies that radically change performance/cost trajectories. The success of the former dictates the level of success of that business as long as the adopted trajectory is dominant in the marketplace. These businesses tend naturally to move “up market” to maintain or increase margins as the (IMO) traverse into late majority adoption in the technology adoption curve. If and when, however, the disruptive trajectories become dominant (for whatever reason) these same businesses fail, because they are unable to respond to the startups eating up their core business.

B2B Customer Development

Welcome to the maze of complex B2B sales. Did you think B2B sales was going to be straightforward; based solely on rational, business-savvy calculations? Based on the bottom-line? Most everyone recognizes that the B2C sales process requires appealing to consumer’s emotions. But believe it or not, business buyers, influencers and users are human, too, and thus are not-exempt from emotional decision making. Ego, hierarchy, competitiveness, fear, grandstanding, sycophantry join budget, market share, revenue, profits, risk, time, resources in the sale.

The “Status Quo Coefficient” represents that which you must overcome above and beyond the pain your product solves, in order to make a sale.

The Art of the Customer Development Conversation

Generally speaking:

Pre-Problem-Solution Fit, you concentrate on learning as much as you can about the problem, who are the real customers (user? buyer? boss?), and possible solutions.

Pre-Minimum Viable Product, you concentrate of learning, developing and testing the minimum features and functionality required o solve the problem to a degree the customer will buy.

Pre-Product-Market Fit, you concentrate on learning about funnels, testing messaging and positioning, and likely iterating on product and market segment in search of P-M fit.

Lean Startup Machine – NYC

Now a couple of days away from the Lean Startup Machine startup weekend, I wanted to get down some initial thoughts on the event.  When approached about participating in the event, I was immediately intrigued by the idea, as long as it took the lean startup principles seriously.  Much to their credit, organizers Trevor Owens, Ben Fisher and Kyle Kelly were open to any and all ideas to make the event conform to Lean Startup and customer development principles.  And much to Eric Ries' credit, he threw his support behind the idea once such conformity was demonstrated.  Still, this was an experiment.

The more one adopts these principles, the more one can find ways to adopt them in all areas of life -- they become "meta," as Patrick Vlaskovits would say -- and this event was no exception.  It was Lean Startup Machine's Minimum Viable Product.

By all accounts (that I've heard), the event was a rousing success.  Here are some more or less random thoughts about the weekend, some of which I hope to cover in more depth soon:

1) I'm blown away by the people who attended: smart, opinionated, creative, dedicated team-players with some really interesting ideas.  And they all want to be startup founders.  Many will scoff at whether this is a good thing or not, but I think it's great.

2) Customer Development is a great conflict resolution tool.  When you reach a loggerhead, formulate opposing opinions as hypotheses and go test them.

3) While there was reluctance among some and a few Engineers stayed inside completely, whole teams hit the streets of NYC to engage customers.  It was awesome to see!  I can't wait for the video.

4) Clearly enterprise B2B ideas are at a disadvantage when it comes to weekend customer development.  But B2C rocked it and B2SMB took advantage of New York's vast number of local businesses.

5) Good team balance was essential.  Those teams with naturally social members kicked customer development butt.  People were making phone calls to business owners across the country, setting up Craigslist ads, conducting surveys, interviewing by telephone and pounding the pavement for person-to-person discussions.  There was more combined customer development in one weekend than most startups do in a year!

6) Customer Development is hard.  Several assumptions were crushed over the weekend and for the more brutal failings, there were no easy follow on steps.  It's one thing for a market segment to fail, it's another when a core idea is roundly  rejected.  But it happened.   It's easy to become demoralized by negative validation, but the teams pressed on.

7) We saw some amazing pivots, product mockups that reflected the changes, and then customer validation of the pivots!  That's pretty amazing for a weekend's work.

8 ) Some people had a tough time understanding the difference between seeking evidence for their idea and testing their assumptions.

9) This event has great potential.  There were some rough spots, but no major problems and the learning that went on was tremendous.

10) It will be interesting to hear more feedback, but my general impression is that this was the first real encounter with customer development for most of the participants and that the experience they gained was invaluable.  My belief is that to truly grok customer development, you must "get a win;" meaning you need to experience first hand the empowerment that comes from customer validated ideas.  I think we had a lot of that!

If there's something in particular you'd like to hear more about the weekend, please let me know in comments.

Why Do Market Segments Matter?

Why Do Market Segments Matter?

I’ve written about market segmentation before both on this blog and as an important concept to understand in The Entrepreneur’s Guide to Customer Development. I think it is vital to grasp because it’s fundamental to achieving Product-Market fit and building a scalable business. I’m writing about it again because it has come to my attention that I have perhaps not explained one of its primary precepts well enough.

As I wrote before, Geoffrey Moore in Crossing the Chasm defined a market segment as:

* a set of actual or potential customers
* for a given set of products or services
* who have a common set of needs or wants, and
* who reference each other when making a buying decision.

Most of this is pretty intuitive. In a nutshell, a market segment is comprised of like buyers who share the same pain. But there’s more to it. The reference part trips some people up. The key point to understand is that the customers and potential buyers must be willing AND able to reference each other.

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You Can Outsource Customer Development, You Can’t Outsource Learning

The consultants came out in droves to weigh in on Steve Blank's recent post, "Consultants Don’t Pivot, Founders Do." (Myself included.)  Generally, all were in agreement with Blank's primary point:

Founders get out of the building (physically or virtually) to test their hypotheses against reality. There are times when customers are going to tell you something that you don’t want to hear.  Or you’re going to hear something completely unexpected or orthogonal to what you expected.

As I like to say, those that hold the assumptions need to test the assumptions.   In the comments, several of us pointed out that teaching Customer Development is a viable service for which entrepreneurs can hire outside consultants. Sean Murphy:

We work with teams as they prepare for and then execute the customer discovery and validation steps in B2B markets. We helping them rehearse leaving the BatCave, we often go with them on customer discovery interviews or sale calls, we debrief from prospect meetings to formalize lessons learned and adjust the sales presentation or the target prospect definition or sometimes the feature set.

Clearly, there's some value being provided here.  In my experience, entrepreneurs have repeatedly sought help with both Customer Development basics, as well as some of its more nuanced components.  Sean Ellis raises a separate issue, agreeing that consultants can provide value, but wondering how the economics work.

I believe the need is there and most consultants have the expertise to fill the need; the problem is that their cost exceeds their value at this stage.

There is no doubt in my mind that this is a challenge, but there's more that one way to skin a cat, so I'm not sure such a blanket statement is accurate.  (Note that Ellis isn't suggesting that consultants don't provide fair value for their compensation, but that the compensation is likely to be too high for the particular stage the business is in.)

This begs the question, what exactly can be outsourced and at what cost?

What Part of Customer Development Can be Outsourced?

It's worth pointing out that one of the best Customer Development practitioners I know is Cindy Alvarez, who is a Product Manager and not a founder at KISSMetrics. Theoretically, at least, Alvarez could be doing what she does as a consultant, rather than as an employee.  If she had internal assistance (say, a less Senior PM  or a technical marketer), she could potentially have two or to three clients and perhaps make a pretty good living.  And while KISS is likely at or near Product-Market Fit, Cindy has been executing Customer Development for them for quite awhile.

As with employees, the key element to working with consultants is trust.   Further, Founders must process outside information to make decisions.  Is it better, for example, for Founders to pivot based on analytics than Customer Development information provided by a trusted adviser?  If a Founder has a "salesperson mentality," and cannot stop selling when supposed to be listening, does that doom the company?  Or can a trusted adviser steeped in Customer Development best practices provide better information?

The more I reflect, the more I think blanket statements about what can or cannot be outsourced are dubious at best.  Learning must happen.  How it happens is not particularly relevant.  The key measure is willingness to learn.  If you belong to one of the archetypes of anti-lean, you are not likely to do Customer Development anyway.  If you are willing to learn, you can likely learn from a trusted consultant, too.  I do think the level of understanding potentially suffers, however, so the stage of Customer Development you're in should influence who the lead CustDev actors should be and what other roles might benefit the process.

In the book, Entrepreneur's Guide to Customer Development, we break Customer Discovery down into three stages:

  • Problem-Solution fit, i.e., validating your core C-P-S (Customer-Problem-Solution) assumptions:  This is the most important stage for Founders to be heavily involved in.  Consultants might help you articulate your assumptions, define market segments, find prospects to talk to, help prepare the presentation and the presenter, and help analyze results.  I have, in fact, also done the interviews for a Founder with both positive and negative results.
  • MVP development: Best if Founders are still heavily involved with early adopters, since they likely need to hone in on the core value they're providing.  I don't see much value in consultants here, other than help with process,, like coaching Product Managers (and Founders) to not engage in feature mongering.  This phase requires a dedication to minimum viability, and a balance between customer-driven solution and vision.  If the two diverge, a pivot is required and only Founders pivot.
  • Proposed Funnel, i.e., learning your sales and marketing roadmap:  Founders need to be engaged relative to their adamancy regarding their sales and marketing assumptions.  Other business model assumptions are typically exposed here, as well.  I believe consultants can play a larger role in this phase, since many founders can use a lot of help thinking through marketing basics.  Consultants might help with defining market segments, proposing funnel hypotheses, and preparing (or conducting) conversations, surveys, etc., to test and validate assumptions.

Clearly I believe a high level of Founder involvement is necessary.  Founders who actually practice Customer Development themselves are arguably in a better position than those that delegate.  But not only are there parts of Customer Discovery that can be effectively delegated, consultants may have a role as well.  The question remains, however, whether (1) consultants can make a living doing this, and (2) whether startups can afford fees that result in (1).

What Model Works for Outsourcing Customer Development?

I know several individuals who practice customer development as consultants.  Clearly, Sean Murphy has found a model that works for him and his clients; Nick O'Connor is another.  I have helped several clients, though finding the right model has been a challenge.  I am passionate about working with early stage companies and have done so for years as a volunteer mentor at San Diego's CONNECT Springboard program.  Figuring out how to make some money, too, isn't a bad thing and admittedly, I've struggled to find the right model that serves well early stage Founders.

Recently, Patrick Vlaskovits, pointed to me a startup lawyer with a unique business model, Kevin Houchin. Houchin charges a low monthly retainer for a long(ish) range commitment, which allows clients unlimited contact, but not unlimited access.  So I'm trying the same thing. So far, so good!  I haven't solved my scaling problem, but I get to work with some great entrepreneurs who are willing and able to execute on Customer Development principles.  They are high-energy, have bought into Customer Development and truly value (and benefit from) feedback, pointers and actionable recommendations.  For more information, see here.

In light of this more in-depth conversation regarding outsourcing and leaving aside for a moment, the general evils of consultants, what do you think about outsourcing components of Customer Development?

Continued: Raising Micro-Capital with Social Proof of Geekiness

Diaspora is now a certifiable Black Swan.

As of this post, they have raised $176,165 from 4,860 backers and still have 15 days to go.  I maintain that aside from tapping into the current anti-Facebook zeitgeist among the tech elite, their success is partially fueled by a pricing/bundling strategy that cleverly (or accidentally) includes t-shirts that signal hard-to-fake social proof of geekiness at a good price.

I have updated my two quick-and-dirty graphs on how pricing/bundling these sorts of social signals/proof (read: t-shirts, in this case) may help with raising micro-capital below.

Enjoy!

Data table below:

Number of Backers: 1,012 805 1,986 316 195 60 5 4
Pledge Amount: $5 $10 $25 $50 $100 $350 $1,000 $2,000
Sub-Total: $5,060 $8,050 $49,650 $15,800 $19,500 $21,000 $5,000 $8,000
Percentage of Total: 4% 6% 38% 12% 15% 16% 4% 6%
*Grand Total: $132,060
*Number of Backers: 4,383
*Will not match totals on http://ht.ly/1KK1b as pledge amounts are "$X or more"
4860

Backers

$176,165

pledged of $10,000 goal

15
days to g
o
1 2 3 4 5 6 7 8

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