Comments (15)

By brantcooper, April 28, 2011 11:57 am

Despite Dave McClure’s imploring to “kill a feature” and Eric Ries‘ urging to “cut your product in half, then halve it again,” most startup founders I encounter are trying to work their way toward Product-Market fit by planning and building new features. The analytical mind of an entrepreneur, both engineer and business-side, naturally tends toward solving problems and ostensibly, features solve problems. But it’s the wrong approach for most startups.

Solution-centralism starts in Customer Discovery.

More often than not I encounter surveys that pay scant homage to the problem, usually has a means of filtering respondents. For example, a typical survey asks “do you have this problem” and if so, how appealing do these solutions sound?  Tweaks to the problem description involve messaging more than understanding.  In other words, the startup team focuses on understanding what words resonate with respect to the problem, as if  the problem itself is fully understood.  Interestingly, the problem continues all the way through to asking pricing questions that evoke dubious responses like “would you be willing to pay?” or “how much would you be willing to pay?”  There is no direct connection to value in these questions.

You hear this in elevator pitches all the time, too.  Egocentric pitches assume the features (and even the benefits) make the problem compelling.

In fact, the opposite is true. The willingness to pay depends on the depth of pain (or passion).

One of my favorite Eric Ries quotes:

If you can’t sell magic, you can’t sell your solution.

Nobody cares about your solution.  They care about solving their problems.

Solution-centralism continues in Customer Validation.

Your product is out the door and you have some market signal, but are still searching for Product-Market Shanggri La.  And you have the feature list and engineering spec that is going to get you there.  Everyone does.  You’re one feature away.  Always.  Your iteration loop has an invisible exit gate.

This is the chasm before The Chasm.  This is where you become the anti-Dropbox, a shattered “tip of the spear.” This is where you become unable to answer who you are:

• too many features;
• features people don’t use;
• features across too many market segments;
• features to keep up w/ Jones’ Widget Co.

Stop.  Please.

Problem-centralism Wins

Be a problem expert. In this age of fast development and no IP protection, whoever “owns” the customer, wins.  You own the customer by understanding and solving their problem better than anyone else.  This is why Customer Development, when properly done, is critical to your success.

• When surveying users early on, focus on problem statements before solution.  (FYI, I am working on an application to help with that.)
• Interviews are critical toward establishing empathy.  Emotion indicates resonance and cues you when to dive deeper, rather than going shallow and broad (like surveys).
• Product demonstrations are not for “show and tell,” but rather is this solving the problem (exercising the passion).
• Messaging/positioning around problem lures the unsuspecting and suspicious alike.
• While iterating product toward what resonates, kill features.

Ultimately your addressable market size depends on amount of pain (passion) in the market, i.e., the size of and number of market segments that share a “big enough” pain (or passion).

Comments (0)

By brantcooper, March 21, 2011 1:16 pm

At long last, here’s the video from Steve Blank’s presentation last month.

Steve Blank speaks to San Diego Tech Founders from Brant Cooper on Vimeo.

Contents:
00:00 My Intro
03:17 Why Accountants Don’t Run Startups
- Old constraints on startups
- Entrepreneurial explosion
- Startups vs Small Businesses vs Large Businesses
- IBM example of big company disruptive innovation
- What did my income statement say in month 1?
- “You’ve just washed ashore on an a deserted island with a knife in your mouth and a loincloth.”
- Searching for a business model, not a business plan
- Customer Development
58:26 Atoms or Bits (New Material)
- Physical vs Online products
- History of Lean
1:03:26 Sloan vs Durant
1:08:41 Q&A
1:29:50 My Conclusion

Be sure to come check out entrepreneur turned investor Mark Suster talk to San Diego Tech Founders March 31.

=> Startups RSVP here.

=> Investors, Service Providers, Professionals RSVP here.

Comments (5)

By brantcooper, March 15, 2011 12:45 pm

Steve Blank and Alex Osterwalder have combined their respective methodologies, Customer Development and Business Model Generation, into a powerful business model generation and testing framework.  There are several good sources for how these two mesh, including this Jan post on Osterwalder’s blog, here and most recently, in Blank’s SXSW presentation:

Blank’s Customer Development is critical, otherwise speculating what comprises your startup’s business model is just another academic exercise.  Arguably, one could easily waste as much time documenting assumptions on your business model canvas as documenting them inside a 40 page business plan.  The canvas exposes your hypotthesis and customer development tests them.  It’s a laudable ambition to document and test all of your business model canvas components.

But how much is necessary to get going?

All building blocks are not created equal.  I believe there’s a natural progression towards figuring out your business model and many blocks are directly dependent on prior blocks.  Is it worth the time to document 2nd or 3rd tier blocks before establishing the reality of 1st tier?  The answer, of course, depends on you and your business.  It doesn’t hurt to go as far as you can at the start, unless the activity inhibits you from getting started, i.e., “getting out of the building.”

To use a rather simplistic example, you might presume that your customer is an enterprise-sized business that requires a field sales force and partnerships with highly technical systems integrators.  What if your customer ends up being a medium-sized business that requires SaaS product distribution?  Early customer development might very well point you down the correct path from the outset.  Some business model components flow naturally from validated core hypotheses.

The real dilemma in my mind is, what do you test first? The key to getting started is to nail the validate of the core hypotheses: Customer, Problem, Solution.

Go to the #CustDev White Board

In our book, The Entrepreneur’s Guide to Customer Development, Patrick Vlaskovits and I developed a white board exercise to help think through business model risk in order to determine what to test first.  The key components are:

=> draw the ecosystem around your business as you imagine it, including partners, distributors, customers.

=> determine which are mission critical — in other words, can you get going without any?  Which are absolutely necessary?

=> state the value proposition for each mission critical participant — what determines whether or not they join the ecosystem?

=> list the minimum product functionality necessary to get entities to participate.

=> prioritize the risks (technical and market) based on the above.

Ultimately, what you trying to prioritize is: what’s the quickest way to fail your business model. The “value path” of testing your business model runs through testing the the core value proposition of each of your mission critical ecosystem entities.  Easiest to test means:  what you can test in the shortest time frame.

If building a landing page and driving traffic to it has the potential of killing your present business model hypotheses, then it’s a legitimate “intermediate MVP” and worth testing.  But be careful.  Are you sure you’re not testing your ability to drive some amount of traffic or your positioning?  If a 3rd party API doesn’t provide the hooks you need to develop a critical piece of technology and therefore your business model fails, maybe that’s what you test first.

Documenting the building blocks of your business model = good.  Using the #CustDev White Board exercise in conjunction helps you determine what to document and test first.

How do you determine what to test first?

Comments (4)

By brantcooper, December 23, 2010 11:53 am

In case you haven’t heard, the startup world is changing forever.  The results of the changes (not the cause) include Lean Startups, the rise of “singles and doubles,” and a power shift towards entrepreneurs.  To dive a bit deeper into what is (may be) happening, one should turn to Christensen’s Innovator’s Dilemma.  As opposed to what was going in Christensen’s example, today’s startups are successfully building startups based on sustaining innovation.  These are the singles and doubles.  There’s also a different class of startup that builds what I’ll call “rippling innovation.”  These startups also result in singles and doubles, but have the potential to hit big, depending on the market they’re in.

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.

Christensen illustrates this dynamic with numerous examples, which I have no intention of going into. Read the book.  The key takeaway for this discussion is “disruptive” means new market and “sustaining” means improvements in existing markets.

Examples of recent disruptive innovation include:

• vaguely, teh Internets
• Google
• SaaS (salesforce.com)
• Facebook
• iPhone
• Twitter

In Christensen’s examples, existing companies develop their own sustaining innovation and startups tend to fail to unseat or even effectively compete against entrenched players.  (In my days at WildPackets, we developed far superior products than the dominant player (Sniffer) and offered them at a far superior price point, but the market share we won was pretty small compared to their overall dominance.  ”You don’t get fired for buying IBM” was definitely analogous in our market.)

Disruptive technologies ripple effect

Today, however, I think we’re seeing that startups are successfully growing businesses based on launching sustaining innovation.  These businesses help other businesses improve performance technologically, in their marketing, sales, customer support, etc.  They provide consumers new entertainment, better shopping experiences, and other quality of life improvements.  I don’t think most of these companies are doing anything terribly disruptive, but help other businesses continue their growth or lower costs, improve margins, etc.  I don’t think there’s anything particularly disruptive and so their market potentially simply doesn’t equate to the “big wins” much of the investment community obsesses over.

The other (related) development is the application of disruptive technology into different markets.  This is what I call “rippling innovation.”  For example, Facebook represents social networking disruption.  There are now hundreds of startups attempting to bring to niche markets similar capabilities.  There are hundreds more leveraging Facebook’s disruption to bring related or derivative products and services to market. Again, most of these will not result in the “big win,” but add real value to their customers.  The latter is a more persuasive reason to invest (terms dependent on size of niche) than presuming an arbitrary return.

These startups succeed not because they are doing anything radically new, but rather because they are using newly available technology to solve the specific needs of carefully-carved niche markets.   (Niche doesn’t necessarily mean small, but does mean smaller.)

What do big companies looks like?

What does it mean to the  big companies if they are no longer leading the way in developing sustaining or disruptive technology?  Lots of acquisitions, of course.  Singles and doubles.  In the past, big companies often folded their acquisitions into the main company.  Christensen argues that this rarely works for disruptive innovation, since the values of the acquiring company (rationally) are ill-suited to new markets.  I’m guessing we’ll see something similar in businesses that acquire sustaining and rippling technology.  Where innovation improves performance to existing customers, the acquired startup will be folded in.  Where innovation adds new market segments, the companies will stay relatively independent.

There used to be (perhaps still is) an ongoing battle in enterprise B2B software between “best of breed” vs “suite.”  In other words, is it best to solve problems ably across a spectrum or solve 1 problem really well, albeit barely addressing other problems, if at all.  There’s something analogous in company building.  Is it better to have a one size fits all solution (or technology carved up by segment) vs a tailored solution by market segment.  I think the latter will win out.

What’s your take?