Chasing Problems?

The best startups generally begin by trying to address a really important problem worth solving. If they can nail the solution to this important problem, they have a great chance of building a successful startup.

How Solving Problems Can Lead to Failure

Surprisingly, founders’ instincts to solve problems can also cause us to fail. Many startups miss success signals because they are too busy solving problems. Our instincts tell us to be responsive to customer feedback – especially negative feedback. These problems are so actionable that we feel good solving them. But over time a startup that chases problem after problem creates a bloated, fragmented solution that isn’t really needed by anyone.

Find the “Must Have” Use Cases – Ignore Most Problems

Ultimately the goal of any startup should be to create a “must have” product experience. The signal that tells you that you have created a “must have” product is your true north to build a successful business. You should understand everything you can about the “must have” experience so you can cultivate and protect it. Who considers it a must have, how are they using it, why do they love it, why did they need it, where do they come from…?

It feels totally counterintuitive to pursue these positive signals while ignoring most of the feedback about problems. But in my experience, this is the right thing to do. In fact, this is the most important thing that I learned in the years that I focused on helping to take startups to market such as Dropbox, Lookout and Xobni. To reiterate, the positive signal is much more important than the ongoing flow of new problems.

Problems Worth Solving

So which problems are worth solving? Essentially any problem that stands in the way of delivering the “must have” experience once it has been identified.

Problems worth solving include:

  • Usability issues that prevent reaching the must have experience
  • Confusing value proposition about the must have experience
  • Targeting the wrong users (AKA users who don’t need the must have experience)

But start by focusing the majority of your energy trying to create at least one must have use case. If you can’t find any positive signal about someone considering it a must have, then go back and revisit the original problem you were trying to solve. You might need to find one that is even more important to solve.

I recognize that my recommendation to ignore most problems is controversial.  Please comment whether you agree or disagree.  Hopefully we can get some good debate in the comments.

Update: Just to clarify, I’m referring to the data that deserves your focus.  I don’t mean to imply that you should be unresponsive to the customers that make suggestions.  It is very important to give great customer support.  Just don’t promise to change your product/business based on every reported problem.

The Cult of “Great Product”

Many of the most successful founders, CEOs and VCs in Silicon Valley belong to the cult of great product.  They understand that a great product is critical to the success of a startup.  News around the life of Steve Jobs has galvanized even more people to jump on the “great product” bandwagon.  Generally this is a good thing, but there tends to be a lot of confusion about what makes a great product.

Great products aren’t anointed by product gurus.  Only customers can decide if a product is great.

Customers will decide your product is great if you can map it to their motivation for changing to your solution.  All customers change from something.  Generally they either switch from a competitive solution or from just tolerating a problem without a solution.  New products should decide on one of these markets.  Trying to serve both markets generally leads to failure.

One way to decide which market to serve is to ask yourself: “when we are generating $100m in revenue, which type of customer do we think will contribute the majority of this revenue?”  Your guess is usually the market you should serve.

Greenfield Customers

If you decide to target “greenfield” people (those without a current solution), then your product roadmap should be focused on simple, effective execution of their desired task.  Simplicity is usually much more important for greenfield users than being feature rich. Dropbox is a great example of a product that has succeeded in a greenfield market with a dead simple solution.   For some categories, features do eventually become important to users, but on a greenfield user’s first experience they should not be emphasized.

Competitive Solution Customers

If you are targeting people who will be switching from another solution, then usually features are an important part of people’s decision to try it.  In this case, you’ll want to make sure that you at least have parity on the key features.  Of course they have no reason to switch if everything you do is the same, so you’ll need to understand their switching motivation.  If you can differentiate on one of the key gripes of the competitive solution, there is a good chance you can be successful.  Common gripes include price, reliability, poor customer service, lack of key features, etc.  You’ll need to both message this differentiation and also deliver on the promise. A “false promise” will cause a high churn rate (people who stop using your product).

Reduce Conversion Hurdles

Either way, switching takes a lot of guts and effort.  Most people are afraid and/or complacent about switching.  Even for those who take the initiative to consider your solution, most will give up before actually trying it.  So it’s also critical to reduce all hurdles that may cause them to abandon the conversion process.

You’ll know you have created a great product when users tell you they can’t live without it.  Unfortunately the “cult of great product” occasionally forgets about these critical components of building an indispensible product.

Wasting Time Validating Assumptions?

Most founders following a lean startup approach understand the importance of documenting and validating assumptions.  My team and I have been doing it since day one.

But recently I began to realize that validating assumptions can also be a waste of time.  In a startup your most precious resource is time and focus.  If you waste too much time on things that don’t directly impact your ability to succeed, you will almost certainly fail.  And if you do succeed, it will be based mostly on luck.

Prioritization is Everything in a Startup

The best way to avoid wasting time is by prioritizing how it is used. Since so much of the focus in an early stage startup should be spent validating assumptions, an essential task is to prioritize the assumptions that need to be validated. While more information about your market is always helpful, certain market assumptions probably aren’t that critical to your success.  As with any data, “actionable” is a key word here.  If validating or disproving an assumption is not going to change your actions, then it may be interesting, but isn’t actionable.

Crystallize Your Vision of The Successful Business

So how do you determine critical, actionable assumptions in your business?  You should start by crystallizing your vision.  This is an important part of success anyway.   In fact a classic book that studied many of the most successful entrepreneurs in history highlights this exercise as the single most important thing they did.

Visualize every detail of your business when it’s successful. You should be able to answer questions like:

  • How will customers discover us?
  • What will be their first experience?
  • When will they realize they’ve found something great (what specifically will they be doing)?
  • Why will they think it’s great/important?
  • Why will they think it’s better than the old way?
  • How will they describe us to other people?
  • How will their experience evolve with our business?
  • When and how will we generate revenue?
  • How will we reinvest that money to accelerate the business?
  • Why will the whole model be repeatable and scalable?

Document every detail you can possibly imagine that describes your successful business.  The more you visualize it, the more you will really begin to believe it.  This will help you generate the authentic passion needed to raise money, attract talent and partners…  It will help you connect to the emotions that are so critical to getting people to take a leap of faith on your vision.

Time for a Reality Check

Now stop drinking your own cool aid!  Document everything that will need to go right for this vision to be a reality.  What are the core assumptions that if proven wrong will make it completely non-viable?   These are the assumptions that will be critical to validate.  These are the things that will cause you to need to course correct.   The earlier you can see the realities that affect your assumptions, the sooner you can get on the right track.

Of course broader market assumptions will also be important over time.  They can help you develop a strategy to pursue bigger market opportunities.  However, startups are too resource constrained to spend time on these assumption until fully vetting the base assumptions that support your original business premise.

Expect some debate about the order in which assumptions need to be validated.  It won’t always be clear which assumptions are critical to success and which are just nice to know.  But some level of prioritization will ensure that you maximize time spent validating the most important assumptions.

Vision Synching in a Lean Startup

In the age of the lean startup, we often forget about the importance of vision.   A big audacious vision is critical for attracting venture capital and for getting the early team to “take the leap.”  It also stimulates the emotion/passion needed to fuel your team’s persistence to blast through inevitable hurdles.

Vision Needs Traction

Achieving your vision requires first getting traction.   The most realistic way to get traction is to break down your vision to something very relevant now for the sweet spot of your target market.  This MVP (minimum viable product) is a bridge between concrete customer needs today and your big audacious vision.

Customer development teaches us that elements of the MVP are often based on flawed assumptions.  As we validate and refine our assumptions, we need to make sure that the MVP is tracking to these new facts.

Vision Synching/Expanding

It’s also important to revisit your vision when new customer facts emerge.   This often provides inspiration for extending the original vision but you should not be exclusively tied to your original vision.  Always seek more interesting directions to be able to take the business once traction is established.

At FREEjit we’ve mapped out a primary vision but we continue to explore other huge opportunities we could pursue once we have some traction to leverage.  Each new fact adds credence to some potential pivots and reduces the viability of others.  Eventually we’ll need to focus on one vision, but the right vision will crystallize over time.  Even while we explore these opportunities, our current execution is very focused on the MVP needed to get traction.  And the MVP maps well to each of the big opportunities we’re considering.

While vision synching seems like a distraction from gaining traction, I find that it reinvigorates the team and makes the pursuit of traction even more exciting.

Since my team and I are heads down on FREEjit, I don’t have much time to monitor comments.  Instead, I’m hoping to get some discussion around this concept on Quora.  I’ve posted the following question on Quora: “How do lean startups avoid iterating their way into a small niche and missing big opportunities?”  I’d appreciate your thoughts.

Getting to Product-Market Fit

I’m very excited about this guest post and confident that it will be a huge help for anyone struggling to find Product-Market fit. Enjoy! Sean

Guest Post By Patrick Vlaskovits

Sean asked me to write a guest post to help startups achieve Product-Market Fit since he primarily advises startup after they’ve already reached it (during their transition to high growth businesses). Actually getting to Product-Market Fit is an important topic since the vast majority of startups never get there, making it virtually impossible to drive sustainable growth.

I’ve just completed what amounts to a comprehensive study on the topic of getting to Product-Market Fit with Brant Cooper, culminating in our book called The Entrepreneur’s Guide to Customer Development. The most important insights were gained from successful serial entrepreneur, Steve Blank, who encouraged us to write the book as a primer to the first step of Customer Development. Customer Development is the startup framework he codified in his landmark book, The Four Steps to the Epiphany. If you haven’t read the book (you really should), Steve’s many insights are deep, but the core takeaway is that most startups fail not because they don’t manage to develop and deliver a product to the market; they fail because they develop and deliver a product that no customers want or need.  The ramifications of this deceptively simple observation are manifold and underpin much of what you will read below.   Sean has provided a free survey that should be helpful in validating if you have created a product people want or need.

The Entrepreneur’s Guide to Customer Development also folds in the work of Eric Ries.  Eric has built upon Steve’s work and expanded it with his concept of “The Lean Startup.” A Lean Startup is one that combines fast-release, iterative development methodologies (e.g., Agile) with Customer Development concepts.

Wherever you are in the process of taking your product to market, the following Lean Startup and Customer Development concepts can help you achieve Product-Market Fit.  Nothing else really matters to a startup other than getting to Product-Market Fit as fast as possible.   Below is a brief outline, based on The Entrepreneur’s Guide to Customer Development, which will hopefully help you do just that.

Identify and document your assumptions

The sooner you understand and accept that you, as a entrepreneur at somewhere pre-Product Market Fit with your startup, are operating in near-chaos, where all your assumptions/hypotheses about how you gratify your users, who they are, how you will acquire and monetize them – are simply that, untested assumptions, the better off you are.

With your assumptions documented and in-hand you will:

“Get out of the Building” to validate (or invalidate) your assumptions

You must find, meet and speak with prospective customers about your product and ascertain the validity of your assumptions. This is the crux of Customer Development.  Only by speaking to these people will you have any sort of understanding about “their reality” as Dan Martell likes to put it.  What problems do they face?  How do they solve them?  What matters to them?  What is a must-have for them?

As you speak to potential customers, you should:

Identify the risk factors in the opportunity

Are you facing significant technology risks?  Or more of market risk?  How can you test and validate these (starting with the most risky)?  What market testable milestones can you build that would result in sufficient evidence to induce you to pivot or move forward? A proof of concept? A letter of intent?  A prototype?

As your understanding of the market betters, the risks will begin to crystallize, if certain risk factors prove insurmountable, you must:

Pivot but not jump

By changing an element of your customer-problem-solution hypotheses or business model, based on actual learning from a customer. As Eric Ries writes “by testing, each failed hypothesis leads to a new pivot, where we change just one element of the business plan (customer segment, feature set, positioning) – but don’t abandon everything we’ve learned.

The way to test and learn from your market is to build an:

MVP (Minimal Viable Product)

Don’t forget that an MVP is a product with the fewest set of features needed to achieve a specific objective and that you should require a trade of some scarce resource (time, money, attention) for the use of the product, such that the transaction demonstrates the product might be “viable”.

For non-paying milestones, you must define the currency (the scarce resource) and your objective (what you are trying to learn). For example, intermediate MVPs might include: landing page click-through that prove there’s some amount of interest in a product; a time commitment for an in-person meeting to view a demo that shows the customer’s problem being resolved; or a resource commitment for a pilot program to test how the product fits into a particular environment.

Once you have users using your MVP, listen for and tune into the:

Must-have signal

that demonstrates the core product functionality that your customers absolutely must have, while testing your assumptions and learning the characteristics of your market segment that will allow you to reach out and acquire them efficiently.  Sean’s survey, mentioned earlier, can be useful in finding your must have signal.

Once you successfully developed a minimal viable product and have found the must have signal, it is time to:

Double-down and strip away the unnecessary

Now you know what your customers want, you need to focus with laser-like intensity in building a gratification engine that does not disappoint.

If you can do all of the above successfully and throw in a hearty amount of luck for good measure, there is a good chance you can get to Product-Market Fit.  It may take a significant amount of time and persistence, but potential customers always hold the answer to creating a must have product.

Milestones to Startup Success

Update added to end of post

When your startup accepts outside money (such as venture capital), you are obligated to focus on maximizing long-term shareholder value.  For most startups this is directly based on your ability to grow (customers, revenue and eventually profit).  Most entrepreneurs understand the importance of growth; the common mistake is trying to force growth prematurely.  This is frustrating, expensive and unsustainable – killing many startups with otherwise strong potential.

Most successful entrepreneurs have a good balance of execution intuition and luck.  This was definitely the case at the two startups where I ran marketing from launch through NASDAQ IPO filings.  While we didn’t follow a specific methodology, our CEO was intuitive enough to know the right time to “hit the gas pedal.”  We didn’t accelerate until verifying that the team had created a great product that met real customer needs and we could generate sufficient user revenue to support sustainable customer acquisition programs.  It’s taken years for me to realize that our growth was less a function of clever marketing tactics than beginning with something that customers truly needed.  Some growth would have been automatic; the marketing team simply accelerated this growth.

Several startups later I have a much better understanding of the key milestones needed for a startup to reach its full growth potential.  These are based more on observing universal truths than inventing some type of methodology.  Reaching the full growth potential of your startup requires focus, specifically focusing on what matters when it matters.  In my post on the startup growth pyramid I talk about the high level milestones you must achieve in order to unlock sustainable growth.  This post looks at it on a more granular level with links to several of my previous blog posts and other resources that provide additional details.

Day 1: Validate Need for Minimum Viable Product (MVP)

Before any coding begins it is important to validate that the problem/need you are trying to solve actually exists, is worth solving, and the proposed minimum feature set solves it.  This can best be achieved by meeting with the prospects most likely to need your solution.  Steve Blank published a great post on this today.

Eric Ries offers more details on the minimum viable product concept in this post/video.

Where’s the Love?

Vinod Khosla, one of the most successful Silicon Valley VCs in history, once suggested to me that startups should think of their early users as a flock of sheep.  He explained “the flock always finds the best grass.”

For you this means you should start looking for a signal about who loves your product and why as soon as you release your MVP.  Most products have at least a few people that truly consider it a must have.  These people hold the keys to the kingdom.  Learn everything you can about them including their specific use cases and demographic characteristics.  Try to get more of these types of people.

A good place to start collecting this information is the survey I’ve made freely available on Survey.io (a KISSmetrics product).    You can read more about this product/market fit survey in this blog post.

If you’re lucky you’ll be able to use this early signal to find the product/market fit.

Expose the Core Gratifying Experience

The majority of our project focus at 12in6 recently has been helping startups find their core user perceived value and exposing it in messaging optimized for response.  Your objective should be to remove complexity from the initial user experience and messaging in order to highlight this core user perceived value.  Often this means burying or even completely eliminating features that don’t relate to this gratifying experience.

Metrics

Metrics don’t matter until you achieve product/market fit – then they are critical to your success.  Dave McClure has a great video on startup metrics that matter (relevant part is at about minute 2:20).

Most of the tools out there provide way too many irrelevant metrics and miss the essential few.  Both Dave McClure and I are advising KISSmetrics on a solution to this problem.

Start Charging

Another key step before growing your business is to implement a business model.  The ideal timing for implementing your business model is discussed in this blog post .

I’ve often heard the argument that startups are focused on user growth and prefer to delay revenue in the short term.  I believe the fastest way to grow is with a business model and explain why in this blog post.

Extreme Customer Support

Now that you have a business model in place, your first marketing expense should be to expand the customer support team.  Anyone that cares enough about your solution to contact customer support is a great source of insight about your target market.  Also, customer support will uncover issues that will help you grow faster without spending.  And fixing these issues will make it much easier to grow when you do start spending.

If your customer support team is overwhelmed now, I don’t recommend trying to grow until you address the issues driving most support calls. Once you’ve addressed these issues you’ll have fewer barriers to adoption and will be able to grow without overwhelming customer support.

This will enable customer support to go above and beyond expectations, which is an important way to drive customer loyalty and enhance word of mouth.  This approach pays more dividends today than ever before – as I explain in this post on Social Media.

Update: See comments for additional thoughts on extreme customer support.

Brand Experience Over Brand Awareness

Back in the “Dotcom Bubble” days billions were wasted on brand awareness campaigns for startups.  Today most entrepreneurs understand that brand awareness campaigns are a waste of money for startups.

Instead, it’s much cheaper and more effective for startups to focus on creating a fantastic brand experience.  While startups often realize the importance of brand experience, they focus on it too early, fine tuning things that customers don’t care about.  Instead, wait until you understand why certain customers love your product; then obsess over every element of this customer experience.

Apple is probably the best tech company out there on coordinating a perfect brand experience for its target users. I cover more on brand experience in this blog post.

Driving Growth

Once you’ve achieved all of the previous milestones, then you can focus on driving growth.  CEOs must take an active role in driving customer growth whether or not they have an interest in marketing. Nearly all of the risk and upside in a startup is in your ability to gain customer traction and then drive scalable customer growth. The CEO should not abdicate this responsibility to the marketer.

It’s important to stay aggressive and take all slack out of the market (make it completely uninteresting to pursue the market for any other competitor).  Your early advantage is the ability to iterate on the customer feedback loop and leverage strong customer loyalty to drive word of mouth.

While ROI lets you know if a user acquisition channel is sustainable, the key focus should be on exposing lots of the right people to your fantastic product experience.  It’s much easier to get passionate and creative about this than purely thinking about things from an ROI perspective. Of course positive ROI is essential for any customer acquisition program to remain in the mix.

When it’s time to hire a marketing leader to partner with the CEO, this post explains my recommendations for an ideal startup marketing leader.  The most effective startup marketers are relentless about experimenting with channels until finding things that work.

Start by building out free channels such as listing in directories and basic SEO.   When you begin building paid channels, extra effort should be put into channels that show strong potential for scale.

Unfortunately you can’t count on effective online tactics working forever.  I’ve seen many hot online marketing tactics lose their effectiveness over time.  This is because online tracking makes it easier for marketers to quickly figure out what actually works.  As a result we start piling into the most effective tactics.   Eventually online tactics get saturated, as explained in this post.

Business building

Fast growing businesses are difficult to manage.  This is the point where you should bring in some experienced operations people if they aren’t already on the team.

It Won’t be Easy

Finally, the top three risks to growing via these milestones are:

  1. You lose patience and decide that one or more of the milestones really aren’t that important.
  2. VCs and/or board of directors lose patience because you did not achieve conceptual agreement on this approach from beginning.
  3. You delude yourself into believing that for “our type of business” customers really don’t need to consider our product a “must have”.  For us, “nice to have” is good enough.

Building a successful business is hard.  Hopefully this milestone driven approach to growing your startup will make it a bit easier.

Update: It’s hard to write a blog post on “milestones to startup success” that covers every type of startup.  Some startup types may need to reverse the order of some of these milestones.  For example, with marketplaces (EBay, social networks, eduFire, dating sites, etc.) user gratification increases with more users so there is a bit of chicken and egg here…  Ad supported sites also benefit from early scale. Many of the articles linked to from this blog post also cover exceptions such as when a startup should start charging (it’s different for enterprise targeted startups).

Seedcamp in London

Seedcamp is an innovative program that brings experienced entreprenuers together with a batch of several promising new startups from all over Europe for a week of mentoring.  The best of these startup receive 50,000 pounds, but the mentoring is worth far more than that…  Seedcamp provides a fantastic model for any region trying to replicate the startup ecology that has helped Silicon Valley thrive.

In addition to mentoring several of the startups directly, I also had an opportunity to present to the full group yesterday.  Here are the slides I presented:

Big Picture Customer Development Revisited

Working with four startups at the same time has steepened my customer development learning curve (and also explains why it has been a month since my last update).   To help balance the load, I’ve brought on a conversion designer and a researcher; we’re finally firing on all cylinders. 

Our customer development goal with every startup essentially boils down to a race to be able to focus on growing the business.  But in order to avoid wasting effort and money on tactical growth drivers, the following steps need to be completed first:

  • Validate the product/service is gratifying a reasonable percentage of users.
  • Create a value proposition that will attract the right type of users and pull them through the conversion funnel to gratification (and ultimately a transaction). 
  • Eliminate friction from the conversion funnel. 
  • Fine tune a business model that supports scalable customer acquisition channels. 

If these steps have been executed well it is relatively easy to grow a sustainable business.  But many startups skip these steps and jump right into trying to grow the business – making their job much harder or even impossible.  Some will get lucky, but most will fail.  

Given the importance of getting customer development right, I’m certain that eventually most startups will contract a specialist to help them navigate the challenges of this pre-scale phase.  I’m often asked how I plan to expand 12in6 to help more startups.  Most people are surprised when I tell them I don’t have a desire to expand the business.  I really enjoy being able to work hands on with two new startups per quarter.  If I built a large team to fill the current void of specialists, I’d be too busy managing the team.  This would mean less time learning how to improve my customer development approach. 

As I explained in my last post, I’m now validating that a startup’s product is gratifying users before I commit to working with them.  While I love to hear from as many funded startups as possible, I can barely scratch the surface of the number of startups that need help.  If I don’t have the capacity to help you, here are a few others that specialize in customer development:  (I haven’t dug into their approach enough to be able to endorse them, but I encourage you to check them out)

If you are specializing in customer development or know someone else that you can recommend, please add names/recommendations in the comments. The main things to consider when evaluating a specialist is their track record building successful companies.  And be sure to check references (especially around chemistry with the team).

I have been sharing discoveries on Twitter (follow me @ http://twitter.com/seanellis) and hopefully  I’ll resume regular blog posts next week (after I get back from a short vacation in Hawaii).

Free Customer Development Help – Survey.io

I’m excited to announce a project that I’ve been working on with KISSmetrics called Survey.io, which provides startups with a free and easy way to prepare, distribute and analyze an initial customer development survey. It includes the content of the survey I use to verify that a startup is ready for 12in6 to work with them.

I recommend sending the survey to a random sample of people who have:

  • Experienced the core of your product offering
  • Used your product at least twice
  • Used your product in the last two weeks

Determine if you are ready to scale

For startups, this survey is an ideal way for you to determine if you should begin the final preparations before aggressively scaling customer acquisition.    The most important question for determining how well your product is resonating with early users is question 2:

How would you feel if you could no longer use [product]?

  1. Very disappointed
  2. Somewhat disappointed
  3. Not disappointed (it isn’t really that useful)
  4. N/A – I no longer use [product]

If most of your respondents are saying that they would only be “somewhat disappointed” without your product, they are really telling you that it is only a “nice to have”.  When asking users why they selected this answer, I often find that they are focused on commodity aspects of the product and they know of a replacement product.  It’s very difficult to build a business around a “nice to have” product, so you should keep your burn low while you iterate your core experience to make it a “must have”.

If however, you find that over 40% of your users are saying that they would be “very disappointed” without your product, there is a great chance you can build a successful business on this “must have” product.  This is the time to reallocate some development resources to optimizing your funnel and messaging as described in this blog post on the Startup Pyramid.

Survey.io to develop value proposition

The survey also provides some useful early feedback for verifying use cases, developing your value proposition and positioning against the most common alternative solutions.  This feedback is directionally useful, but I recommend significantly more research (via customer surveys and interviews) before finalizing your value proposition and positioning.

I strongly encourage you to setup and run your own customer development survey via Survey.io.  It only takes a few minutes and it free.  Here’s the link again.

What is the Lean Startup Approach?

It took a recession for entrepreneurs to finally start launching startups the right way. But in my experience, a lean startup approach is ideal in any economy.

The two key pillars of the lean startup are customer development and agile product development. Both involve a systematic process of learning through feedback and driving improvement through metrics driven testing. Contrast this to the traditional startup approach of bloated budgets supporting large marketing and development initiatives based purely on intuition.

While I have been working hard to evolve and promote metrics driven customer development, Eric Ries has evangelized the complete lean startup approach. And he has included practical execution guidance (often to the annoyance of more guarded practitioners of agile development).

All startup founders and engineers should find the time to attend Eric’s workshop – if you can get in. You won’t be disappointed.