More Customer Development Cycles

I kicked off this quarter’s two new customer development projects earlier this week. It seems like I just started with Dropbox and Eventbrite, but we’ve actually completed the full six months with Eventbrite and we’re in the last few weeks with Dropbox. Eventbrite and Dropbox were really the “Beta” customers for my six-month customer development program. I am extremely grateful to both for taking an early risk on my program. We’ve made enormous progress, but you never really finish customer development, so I look forward to continuing to help both however/whenever I can. Going into these next two projects, I feel like I have a much clearer understanding of the customer development success hurdles and opportunities so we can make even faster progress.

On a personal note, I’m thrilled that I can make a viable business out of working with startups on their customer development. I couldn’t imagine doing a job that would be more fun. This is by far the most exciting time in the company creation process – watching the startup get validation for years of hard development work.

One of my biggest challenges these days is keeping focus on execution while still finding time to select the next quarter’s startups. I’m averaging 15-20 introductions per month for the two spots I have to fill each quarter. Of course in this economy, this is a much better problem to have than the alternative.

I’ve gotten fairly efficient at determining which companies are a good fit. We start with a quick 10 minute phone call to see if the company is too early, late or competitive with an existing/previous client. I then give the founder/CEO a quick overview of my background and the customer development program. If they are still interested, I ask if they would be willing to have their users fill out a brief survey. This gives me some idea about early user perceptions as to how well the product meets their needs, the intensity of those needs and potential substitute products. When I combine this with potential viable angles to approach customer acquisition and information about the business model, I can quickly narrow down the list. So for the two openings for May I have it narrowed down to 7 very good fit companies. But I’m reluctant to fill both spots because I’m getting several more interesting intros each week. I’ll probably commit one of the spots in the next couple of weeks and leave the other open through the end of March.

The whole process is pretty time consuming, but essential for finding the right companies.

I apologize to anyone who I’ve been introduced to recently if this seems a bit impersonal. Hopefully this blog post will help to put it in context a bit… If we do end up working together in the future, you’ll be happy to know that I’m not spending several hours per day with prospective new startups. Once it looks like a good fit, I’ll definitely spend the time to make sure we have the right chemistry.

One other quick request for anyone that is considering working together… Please wait until we both agree there is a good potential fit before reaching out to my existing/former CEOs. As you can empathize, they are very busy. Once we agree it’s a good fit, I feel very comfortable having you contact them.

Don’t Hire a Marketer before Product/Market Fit

This must seem like heresy coming from a guy who had the title VP Marketing for 10 years and writes a blog called But the fact is marketing is not appropriate for startups in the initial stages of customer development.

A newer model is emerging originally sparked by Steve Blank, author of Four Steps to the Epiphany and teacher of customer development at both Berkley’s Haas business school and at Stanford University’s graduate school of engineering. I consider Steve Blank to be the world’s foremost expert on customer development. Through his experience as CEO, Founder or VP Marketing at 8 startups (5 of which resulted in $100m+ exits – the last was E.piphany) and advisor/board member to numerous other startups, he has concluded that the ideal model is very different from the traditional startup approach of abdicating customer development to a VP of Marketing. I completely agree with his claim that none of the traditional VP Marketing skills are relevant in the first two customer development steps of a startup’s life (page 215 Four Steps to the Epiphany).

Given the high VP Marketing turnover rate at startups and more importantly the extremely high failure rate of startups, his model is definitely worth considering vs. the traditional startup marketing approach. His recommendation is to form a customer development team led by a “head of customer development.” The team should include the CEO and spend a considerable amount of time in the field with prospective customers validating/refining hypotheses about their target customers and the problems they are solving. He says this team “must have the authority to radically change the company’s direction, product or mission and the creative, flexible mindset of an entrepreneur.”

After five years in the VP Marketing role at LogMeIn, I too recognized that the initial stages of customer development are very different from marketing in the later stages of a startup or especially a large established company. In fact, I concluded that much of my success as a later stage VP Marketing (both companies filed for IPOs) was the result of momentum we had built in the early stages of customer development. I decided that going forward I would specialize in early stage customer development.

I was first introduced to Four Steps to the Epiphany when I was Interim VP Marketing at Xobni during the first half of 2008. I had been looking for resources to help me understand how to drive adoption of this innovative market-creating product (a very different challenge than we had at LogMeIn which disrupted an existing market). The book provided a great framework to follow as we worked to drive early customer adoption. Since then I have helped to accelerate market adoption at two additional startups, while continuing to advise at Xobni.

Given my obsession with startup customer development, I was thrilled for the opportunity to meet with Steve Blank for coffee earlier this week and was flattered when he invited me to present to his class at Haas on March 10th. We agreed that my approach really begins at his Customer Validation step.

There are two key twists I’ve made to his framework. The first is that I drive the entire process with metrics. In fact I’m working closely with KISSmetrics (where I am an advisor) to define all the tools and reports needed to build a complete Customer Development Platform.

The second twist is that I add a customer development specialist when the Validation Step begins, which is the role I fill with startups. I belive eventually many people will specialize in this critical stage.  Without a specialist, startups waste critical time and resources deciding where to execute. It’s surprising how similiar the process of uncovering the critical information needed to drive customer adoption across different types of startups.

One place where my views diverge a bit from Steve Blank’s is that he suggests that a good candidate for the Head of Customer Development is someone with a product management or product marketing background. The key issue I see here is that experienced product marketers suffer from the “curse of knowledge.” They know enough about product marketing to want to focus efforts on areas that are usually irrelevant to startups. Having the discipline to follow the right process at this stage is much more important than experience. The good news is that I’ve found ambitious, analytical recent college graduates to be ideal candidates. They are easy to find and their salary and equity requirements are also much lower than a VP Marketing – freeing up resources to bring in a customer development specialist. This combination accomplishes more results faster than an experienced product marketer by themself, and generally costs the startup less cash and equity. Of course if you already have an experienced marketer I wouldn’t advocate replacing them.  This guidance is really directed at startups that are trying to hire an experienced marketer – and a warning that you will be paying a premium for skills that aren’t critical at this point.

Once the startup has discovered how to drive customer adoption and begins building momentum, it should be easier to attract the long-term VP Marketing (or promote the head of customer development).

What is a Perfect Startup Launch?

Conventional wisdom says “launch” is a big bang event that happens in a very short period. It includes a press tour, an expensive launch marketing campaign, and if you could shoot balloons out of your homepage, most would think that’s a key element. The hard work is in orchestrating it all, so on the day of launch there is a big party where everyone drinks champagne and congratulates themselves on a job well done. New product launches that follow this conventional wisdom fail more than 80% of the time

I’ve always launched the way it should be done – initially because I was an untrained marketer. A perfect launch lasts several months and is a very iterative, metrics-driven process. It should start with the understanding that all of your assumptions are probably wrong. You don’t know who your most passionate users will be, you have no idea how to position the product and can’t understand what will prevent potentially passionate users from reaching a gratifying experience. I once heard Vinod Khosla describe this period as watching a flock of sheep grazing in an open field. The flock always gravitates towards the best grass. The launch period is about watching the flock to identify this best grass and figuring out how to describe it to drive as many of the right people (or to stick with the metaphor, sheep) toward this grass.

Those that follow the conventional “big bang launch” waste a lot of money incorrectly positioning their products and attracting the wrong types of users.  Executing the launch phase correctly improves results from external customer acquisition intiatives by 200% to 1000% within a few months.  For this reason alone it is better to conserve marketing dollars until after successfully completing the launch phase.  

I’ve recently begun calling 12in6 a “launch accelerator” because the true value we offer is the ability to quickly uncover key information by engaging early users and iterating/improving the complete customer acquisition process based on their feedback and measured results.  The five startups launched with this approach have become leaders in their respective categories (2 filed for IPOs). Luck is only part of the reason.