Comments (3)

By brantcooper, February 23, 2011 6:58 pm

I haven’t weighed in on Customer Development thoughts for several hours, so it’s about time. Interesting series of tweets in the last several days got me thinking about the biases we bring to Lean Startup Customer Development practices. Unfortunately, but perhaps inevitable, the biases often result in finger pointing and not a little bit of self-congratulation. To an objective user, however, such instances seem to be rather obvious forest-tree issues, rather than the profound insights they hope to be.

Here’s a handy graphic illustrating source and bias:

If one looks closely, one can perhaps discern my bias. ; )

Let’s go through these.

1. Those with marketing backgrounds are comfortable speaking with customers in a manner determined by their specific role.  Product Managers talk about road map, collect feature requests and bounce ideas off customers, often in group settings (focus groups, advisory boards, etc.).  Product Marketers communicate features and benefits and elicit feedback, often through surveys.  Corporate marketers practice “branding” and spin.  Feedback goes to info@ email boxes, twitter tweets, and Facebook ‘Likes’ (or not).

2. UX Designers are quick to tell you they invented Customer Development only called it something different.  And frankly, they’re right to a degree.  When it comes to product design.  Or parts of product design.  Anyway, UX Designers are good at observing user behavior and interacting with them in a particular (not peculiar) way to determine if the product is “working.”  This is instrumental to today’s products.  (Not always the case, as I’ll argue in another post.)

3. Engineers, in their lifetime quest to never have to actually speak to a live animal of the “Customer” species, utilizes analytics tools and product instrumentation to produce reams of data on user behavior, i.e., actual user interaction with the product.  Instrumentation is instrumental, too.

4. Penultimately and leastly, are the investors, branders, Madison-Ave marketers, turn-key salespeople, high-tech gadflies and backseat pundits who declare that Vision is the only thing that matters.  All you have to do is be like Apple and Ikea, get it?  Do I have to spell it out for you?  All you have to do is be just like A-P-P-L-E.  There now, go to it.

5. Finally, what is the Customer Development bias?  Customer Development needs all the practices above, but none of them help you understand the problem, the pain, the passion. That’s the final leg or better yet, the first leg of Customer Development.  Empathy.  Whatever walk for mankind you need to do to walk a mile in your customers’ shoes; whatever interview technique, lunch buying, drink toting, teatotaling, karaoke yodeling you must participate in to gain an understanding such that you feel empathy.

Now, then, can’t we all just get along?

Please excuse the hyperbole and generalities and the tongue-in-cheek.  Recuse yourself as you see fit.  Feel free to post vitriol in comments. : )

Comments (7)

By brantcooper, February 14, 2011 1:59 pm

Back in December 2009 when Patrick Vlaskovits and I first contemplated our Customer Development book, I was noodling around with a graphic to illustrate the integrate Dave McClure’s Pirate Metrics with Customer Development activities. I posted the graphic in a blog post which garnered lots of attention, including an important comment from Dave himself:

btw, note that AARRR isn’t exactly sequential… in fact, i’d emphasize Activation & Retention *first*, then go after Acquisition & Referral, then optimize for Revenue

Recently, I have caught a couple of my Customer Development clients optimizing the metrics in the “wrong” order, so Dave’s comment bears repeating and perhaps some expounding upon.

The Pirate Says “AARRR”

The anagram is ordered by user experience:

A – Acquisition – User is directed to your site;

A – Activation – User signs up or is otherwise engaged;

R – Retention – User keeps coming back, i.e., is engaged over time;

R – Referral – User invites others;

R – Revenue – User pays or is otherwise monetized;

This is not, however, the order in which you should optimize your product while building your business.  The order (and truly, the metrics themselves) are dependent upon your business model.

For B2C Free, Say RRAAR

Retention – Nail engagement so that users want to or must come back;

Referral – Your business model requires massive user growth, so your product must require referrals to work or must be so cool it just happens;

Activation – Once your users are here to stay and inviting others, optimize their conversion funnel.

Acquisition – Now you’re ready to blow up acquisition.  (Good time to get investment funding.)

Revenue – Millions of users?  Time to monetize.

For B2C or B2B Freemium, Cheer RRRAA!

Retention – Nail engagement so that users want to or must come back;

Revenue – If your business model requires users or businesses to pay, you need to figure out what they’ll pay for before you blow-up anything;

Referral – Since you’re likely not a true network-effects business, you optimize referral after revenue.  Optimizing referral is actually part retention, part funnel optimization.  Users are so happy they will refer others to your site or provide you testimonials or speak to the press, etc.  Not much sense in blowing up your acquisition, however, until you have that level of passion.

Activation – This refers to Blank’s “Sales and Marketing roadmap.”  Here you understand and optimize your sales funnel.

Acquisition – OK, now you can hire that PR firm.

For Enterprise B2B, Cheer an alternative RRRAA!

R – Revenue – If you’re selling to businesses the number one thing you need to prove is that someone cares enough about what you’re providing to give you money for it.

R – Referral – As above, referral in this context means that your customers are willing to sing your praises publicly.

A – Activation – In this context, activation is understanding your sales and marketing roadmap.

A – Acquisition – After you nail your sales and marketing roadmap, you’re ready to feed the top of the funnel.

R – Retention – In enterprise B2B, you often don’t have a subscription model, but may be charging annually for maintenance and support.

Note that you will always need to do some level of “acquisition” in order to figure out and optimize the other stuff.  But the point is that you’re not concentrating on or optimizing acquisition at the start.  Exact order of AARRR is debatable from one business to another, so use above as guidelines only.

Comments (6)

By brantcooper, January 12, 2011 11:31 am

I had a brief email conversation with a startup founder struggling with how to tackle customer development in marketplace business models.  I thought I’d share a bit about what we discussed, in case others have a similar dilemma.

Customer Development does not equal User Acquisition

Customer development is a method for discovering, testing and validating user acquisition and conversion methods.  So that a marketplace suffers from the “Chicken and Egg” problem, i.e., there’s only a true market when they’re both there doesn’t affect Customer Discovery and some amount of Customer Validation.  In other words, you can interview both sides of the market place, show them solution ideas, validate MVP features all without the other side of the marketplace being involved at all.

The pre-development signal you are trying to hone in on is “What will it take minimally for each side of the equation to come to the market?”  In most marketplaces, what you will discover is that one side of the market is actually the product, and the other side is the consumer of the product.

Product vs Consumer

In truth, the “Chicken and Egg” problem doesn’t exist.  I hate to burst your object impermanence bubble, but your local weekend farmer’s market exists even when you don’t go.  ; )  Marketplaces can exist with products, but no customers — just not for long.  One side creates the marketplace, i.e., is the “product”; the other side creates the market, i.e., is the consumer of the product.

To put it another way, the business doesn’t exist without product, but doesn’t succeed without customers.  (Exists, but fails.)   In the groupon example, clearly coupons are the product.  (Groupon doesn’t exist without coupons, Groupon doesn’t succeed without consumers.)  A client of mine had photographers on one side of a marketplace business model and people who need custom photos on the other.  The business doesn’t exist without photographers; doesn’t succeed without people buying photos.

Marketplace User Acquisition

The “Chicken and Egg” dilemma does (potentially) exist, when it comes to converting prospects into customers or users.  ”Network Effect” businesses have a great potential to grow virally  if they nail their value prop, but need the effect to get the effect!  Some marketplaces suffer from the same dilemma: there’s no value to either side until both sides are there and engaged.

BTW, Customer Development doesn’t have a specific process that will instruct you how to get both sides to your product and get them engaged.  Customer Discovery will not tell you how to solve the acquisition and retention chicken/egg problem.  Is this the much-ballyhooed Customer Development “Fallacy?”  (I don’t get what the fallacy is supposed to be.) Like most aspects of building a business, you won’t find an answer in a book.  You actually have to try methods others have used or think up some new ones and SEE WHAT WORKS.

• Namesake has done a good job using a velvet-rope strategy to test, validate and grow its network effect.  They carefully invite early-adopter types to ensure that site activity is consistent and of decent quality so that there is something for new users to engage with;
• Use a tight geographic approach to control environment;
• You have to get product to market, so make it dead simple for the product side of your marketplace to engage.  Not just cheap (or free, initially), but simple. Do the work for them if you must.

I hope you find this helpful!

Comments (14)

By brantcooper, November 11, 2010 11:47 am

If you follow high tech startups at all, it was virtually impossible to have missed all the discussions this summer regarding disruptions occurring in the startup environment, including the role of investors, the wisdom of “Lean startups,” and bemoaning the fall of the “big win” mentality.  As I sad in a Venture Beat article, when in the midst of change, it’s difficult to know where you are in the curve.  It’s also difficult to discern whether something is an instigator of change or the result of change.

I think it’s important to understand that there is a new startup reality, that this reality is not based on fads, but represents a fundamental shift — i.e., there is no going back.

First, startups are a global phenomenon. If you don’t believe me, hitch a ride on one of Dave McClure’s Geeks on a Plane trip or note the different languages used to tweet about Lean Startups.  Not only are entrepreneurs creating new startups around the world, but the ability to hire quality resources and manage remote teams improves every year.

Second, startups are cheaper to start. By now this is stating the obvious, but with open source platforms and tools, the relative ease of building product (including hardware) compared to a decade ago, the emergence of social media and marketing analytics, and again, inexpensive global resources, mean that founders can get up and running toward proving elements of their business model for thousands of dollars.

Third, startups are social. Back in the day, the sole purpose of networking events was to exchange business cards and exercise ego.  It was about “what can you do for me.”  Today, it’s about “what can I do for you.”  In my experience, entrepreneurs today embrace the ethos of “providing value,” with the belief that value will someday, somewhere be provided back.  There is a desire for real entrepreneurial community that creates an incredibly fertile environment.

Fourth, startups are data-intelligent. While there’s always the risk of drowning in data, the fact is that entrepreneurs have an incredible amount of intelligence about their customers.  From resources that today seem incredibly mundane like dead-simple survey tools, to narrow, but powerful apps to test and measure user experience and interface design, to sophisticated analytics around marketing funnels and product feature usage, startups are able to “build, test, measure” like never before.

Fifth, startups are savvy.  By this I mean, that they are a smarter about building startups.  Not because they are more intelligent, but because they have 1-4 above.  They are more worldly-wise, they are open, they share, they are eager to learn and they have access to incredible mentoring.

Barring some global catastrophe like, I don’t know, the ice caps melting or something, none of the above is reverting back to the way it was in the past anytime soon.  Unable to predict the future, I’ll leave open whether bigger trends emerge.  But so given the above, what can we discern?

The macro changes described above have created a perfect storm for disruption to the startup environment.  It has given rise of the “super angel.”  Is has resulted in an explosion of incubators, accelerators, co-working spaces and mentorship programs.  It has enabled the successful emergence of the Lean Startup methodology. While in the micro- sense, as individuals, Eric Ries and Steve Blank are changing how startups are build and Dave McClure is helping change the investor landscape, from a macro- point of view, they are the result of disruption, not the cause.

I point this out not to diminish their accomplishments, but on the contrary, to argue 1) criticisms of their activity largely miss the real point; and 2) we don’t know yet how the environment will look, only that it won’t be the way it was before.

So with that, I will go ahead and predict where I think we’re headed.

Already, college students worldwide graduate believing they will launch a startup.  Go to any Startup Weekend or Lean Startup Machine event and listen to interesting pitches being made by weekend warriors.  It’s incredible.  Hundreds of thousands of would be startup entrepreneurs emerging globally every year.  We are witnessing a fundamental shift in power from investors to entrepreneurs.  Local communities are forming everywhere with entrepreneurship as their focus.  These ecosystems are emerging to support “grassroots entrepreneurship.”

All these startups cannot be funded by institutional investors.  Friends and family investors is already an accepted first effort, though VCs were preaching otherwise as recent as a couple of years ago.  Perhaps some still do.  The rise of early stage (even 5-10K) investments through wealthy individuals, angels and incubators is already occurring.

No matter how much some bemoan “dipshit” companies, sorry brother, they are here to stay.

The fall of the “big win” is permanent.  Investors, find a new model.  You can’t just bet on the needle in the ever-growing haystack.

The role of M&A will increase.  Big companies will struggle to keep up with both sustaining and disruptive innovation.  Acquisition is their only hope.  Secondary equity markets to merge synergistic startups will rise in prominence.

On the entrepreneurs’ side, Founders will continue to need to prove business models to get funding, so the use of Lean Startup or Lean Startup-like methodologies will accelerate, as well bootstrapping and crowdsourcing.

While some of this may seem obvious and some wild speculation, the fundamental factors driving the disruption are pretty indisputable.  And it’s important to distinguish between what we can do and changes we can drive versus what is changing us.  Such a perspective can help us at the very least, to picture the forest if not actually see it.

What is being created, in my estimation, is an innovation machine.   High-powered Lean Startups — fast pivoting toward product-market fit and capital efficient — are like “Moore’s Law for Startups”: increasing output on decreasing input, over time.  Imagine an environment where we embrace dozens of startups attacking similar problems, but with different solutions and targeting different segments.  Large businesses are perhaps constructed from small wins.  Big businesses innovate through acquisition.  Such an environment can only lead to more and faster disruptive innovation.

The real question then becomes, perhaps, how does society handle an increasing rate of disruptive innovation?

Right or wrongly, Thomas Robert Malthus (1766-1834) is held out as a representative of inevitable doom and gloom scenarios involving human existence.  Critics often point to technological advances as examples of how humans continually postpone, if not vanquish, Malthus’ scenarios.  There will always be those ready to declare, The End is Near! But there’s no denying the world faces extraordinary problems.  And I can’t help but feel that when you have a powerful groundswell of entrepreneurship occurring on the one hand, and an absurd peak of celebrating ignorance in our society on the other, that we are perhaps reaching toward the next epoch of innovation and enlightenment.