Milestones to Startup Success

November 30, 2009

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 has published a great post on this.

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. 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, 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).

60 thoughts on “Milestones to Startup Success”

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  8. We just launched a new startup last week and I completely identify with everything you wrote about early milestones. I feel like we are between the ‘Where’s the Love?’ and ‘Expose the Core Gratifying Experience’ phases. It seems everyday we are tweaking our language based on customer feedback and how they are responding. For instance, we originally described ourselves as a ‘twitter tool’ but realized people had a negative association because there are so many twitter tools and they think its a replacement for their existing twitter clients. So we changed the language to describe ourselves as a ‘twitter newswire’ and have had an immediate improvement in response. Really one of the best posts I’ve read on this subject. Would be great to see it expanded into a book. Thanks.

  11. Thanks everyone for the positive comments – edwkim, really appreciate the specific examples from your startup. Of course if anyone disagrees with something I welcome that feedback too. I don’t think we’ll ever perfectly understand what it takes to create a successful startup. But we can all benefit from pooling our learning.

  13. Hey Sean – As I noted in my tweet, this is an outstanding, insightful post. One quick comment with respect to risk #2 above (i.e., that “VCs and/or board of directors lose patience because you did not achieve conceptual agreement on this approach from [the] beginning”): it is imperative for the founders to diligence the investors to ensure that “conceptual agreement” is even possible. Often the emotion of getting money in the door overrides the requisite analysis of whether the investors are appropriate partners. Indeed, as a corporate lawyer for 15+ years, this is the most common mistake I have seen entrepreneurs make (which I discuss in detail in “Mistake #1” here: http://bit.ly/10eiiN). Keep up the great work. Cheers, Scott

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  16. “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. ”

    Gold

  20. This is really great – essential reading.

    My favourite bits of advice:

    about users… “the flock always finds the best grass”

    about your product… “metrics don’t matter until you achieve product/market fit”

  22. Excellent post Sean!
    Although I had read most of your other articles, for me this post came as a concise compilation of what steps a Startup should take before and after finding product/market fit.
    Thanks for sharing!

  23. Thank you!
    This is incredibly to the point.

    You should know (probably already do!) that Twitter is re-tweeting you automatically because so many of the people that I follow are recommending your post. Now that is the mother of all virals!
    Great post…
    Nazila

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  26. Great post Sean. Was surprised to see extreme support show up so late in the flow. To me, extreme love and support is essential to finding your flock.

    At tungle, there was a time when I knew every single user by name. That does not scale of course, but it was essential in helping us understand our best users.

  27. Thanks Mark. I agree that extreme customer support is important from beginning. I really meant a separate “team” dedicated to extreme customer support. Prior this everyone (especially the CEO) should be very engaged with users through the support channels.

    For example, I’ve been trying to use Outright lately to balance my business books. I desperately need the product (Excel is no longer meeting my needs and Quickbooks is more than I need) so I reported some things that weren’t working for me. I had a prompt reply from the Dir of Product and helped them uncover and fix two bugs. They learned a ton from this interaction:
    1) I need the product so much that I’m willing to help them debug it
    2) They found two bugs which would have caused many other prospects to dismiss Outright as an unreliable solution.

    And through the whole thing my loyalty increased because they were responsive to my needs. If support was overwhelmed because they were growing too fast I would have gotten a canned response and given up on them.

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  33. Valuable insight. My head is down and plowing through the implementation of our business plan we have: 1) 1st sale about to hit the books, 2) rolling close of A round, 3) found a seasoned COO/CFO with great depth, and 4) now developing sales team. This was a great reminder of the fundamentals and theme required in the execution as theory meets real world: the worlds collide (big bang or black hole?). I appreciate the reminders, perspectives and insights.

    Big focus reinforced is extreme customer support and brand experience before awareness. Bingo!

    This was fuel for our mission…post launch.

    Sam

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  41. Sean,

    This is a MUST freakin’ read for anyone thing or doing a startup. If they follow this + watch/read your reference materials, they’ll definitely increase their chances of success. (even though most will fail ;-).

    Thanks for sharing!

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  45. Great post Sean, been consuming your knowledge on twitter and feedly for a while, thanks!

    I’ve been in a few startups where this process hasn’t been formalised, but tacitly followed to a degree – great to see you bring everything together and give us all a great worksheet!

    What are your thoughts on using cheap online customer support tools (GetSatisfaction, Zendesk, etc.) to help bootstrap the early days of a technology startup? Do you think these tools can be used to the sort of extreme you mention, or more in a supporting role?

    Cheers,
    -Dan

  46. Sean, I can only echo the comments on this post about how useful this information is. It’s so easily digestible and gratifying.

    Question: How many users/customer/accounts do you need before you can do the survey? We’re post revenue but still need assurance of exact product fit.

    Now feels like the time for us to do this.

    Thanks!

  47. Thanks Matt – I generally look for about 30 responses to the survey. For products that are resonating well with users, a 10% response rate is typical. So you probably need at least 300 users before surveying. Up until that point you should be meeting with as many customers as possible.

  48. I really enjoyed this. I think you nail the idea that start-ups are necessarily torn between what to focus on at different intervals of the company. How hard do you push on the market adoption front versus shoring up the many different features / functionality you are aware need to be addressed to get the product to that minimum viable product level? These questions you raise are the ones that I’ve been swimming in – and this post (and the resources you link to) are great breadcrumbs to follow for perspective.

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