A hero with 1000 faces
At the outset of the voyage, the path is unclear, and the end is not in sight. Each hero meets a unique set of obstacles, yet Campbell’s keen insight was that the outline of these stories was always the same. There were not a thousand different heroes, but one hero with a thousand faces.
Untraditional model
Startups that survive the first few tough years do not follow the traditional product-centric launch model espoused by product managers or the venture capital community.
Learning and development
the winners invent and live by a process of customer learning and discovery. I call this process “Customer Development,” a sibling to “Product Development,” and each and every startup that succeeds recapitulates it, knowingly or not.
Greatest risk
To begin with, the Product Development model ignores the fundamental truth about startups and all new products. The greatest risk and hence the greatest cause of failure in startups is not in the development of the new product but in the development of customers and markets.
Failure due to…
Startups don’t fail because they lack a product; they fail because they lack customers and a proven financial model.
Premature scaling
Having Sales and Marketing believe that by first customer ship, come hell or high water, they need fully staffed organizations leads to another disaster: premature scaling.
Investors and profitability
In addition to these three errors, there is another consideration: Startups face enormous pressure from their investors to become profitable. Sometimes, to get funded, these new ventures make unrealistic financial assumptions about market size, growth or by simply ignoring the consequences of the Market Type they have chosen.
Crossing the chasm
problems you face occur much earlier than any chasm. In fact, you should be so lucky to be dealing with chasm-crossing activities, for they are a sign of success.
Learning > Exceution
In the early stages of a startup, focusing on “execution” will put you out of business. Instead, you need a “learning and discovery” process so you can get the company to the point where you know what to execute.
Select audience > Wide audience
A select audience versus a wide audience, and high-quality furniture versus commodity furniture, were the crucial differences between success and massive failure.
Unsustainable measures
(Having raised lots of money tempts you to give products away, steeply discount to buy early business, etc., all while saying, “We’ll make it up later.” It rarely happens that way.)
Listening
Instead, he was out in the field listening, discovering how his customers worked and what their key problems were.
Parallel
Instead, Customer Development and Product Development are parallel processes. While the Customer Development group is engaged in customer-centric activities outside the building, the Product Development group is focused on the product-centric activities taking place internally.
Market-driven vs product-driven
As the market and customers get clearer by successive refinement, product features are driven by how well they satisfy this market. In short, in big companies, the product spec is market-driven; in startups, the marketing is product-driven.
Problem
While the new strategy sounded great on paper, it suffered from the same problem as the first: The product might be nice to have, but it did not solve a compelling problem.
Learn customer’s behaviors early
Time and again, startups focus on first customer ship, and only after the product is out the door do they learn customers aren’t behaving as expected. By the time the company realizes sales revenues won’t meet expectations, it’s already behind the proverbial eight ball.
Problem to solve
Have we identified a problem a customer wants solved? Does our product solve these customer needs? If so, do we have a viable and profitable business model? Have we learned enough to go out and sell?
Waterfall process is not appropriate for startups
Marketing holds focus groups, analyzes sales data from the field, and looks at customer feature requests and complaints. This information leads to requested features that are added to the product specification, and the engineering team builds these features into the next release. While this process is rational for an established company entering an existing market, it is folly for startups.
Early feedback
A successful startup solves this conundrum by focusing its development on building the product incrementally and iteratively and targets its early selling efforts on a very small group of early customers who have bought into the startup’s vision. This small group of visionary customers will give the company the feedback necessary to add features into follow-on releases.
No pressing problem
You go into the bank and tell the president, “I have a product that can solve your problem.” If his response is “What problem?” you have a customer who does not recognize he has a pressing need you can help him with. There is no time in a startup’s first two years of life that he will be a customer, and any feedback from him about product needs would be useless.
Late adopters
Customers like these are traditional “late adopters” because they have a “latent need.”
Counter-intuitive
The idea that a startup builds its product for a small group of initial customers, and builds the product iteratively, rather than devising a specification with every possible feature for the mainstream, is radical. What follows is equally revolutionary.
Understanding customer needs
Product Development will be interacting with a team that understands customer needs and desires. Product Development no longer will roll their eyes after every request for features or changes to the product, but instead understand they come from a deep understanding of customer needs.
No traditional titles
The Customer Development process gives up traditional titles and replaces them with more functional ones. As a startup moves through the first two steps of the process, it has no Sales, Marketing or Business Development organizations or VPs.
Roles of product development and customer development
The Product Development process emphasizes execution. The Customer Development process emphasizes learning, discovery, failure, iterations and pivots.
Fundamental beliefs
Finally, next to the mission statement post the founding team’s core values. Unlike mission statements, core values are not about markets or products. They are a set of fundamental beliefs about what the company stands for that can endure the test of time: the ethical, moral, and emotional rocks on which the company is built.
The product brief covers these six areas:
Smallest feature
You want to understand the smallest feature set customers will pay for in the first release. The minimum feature set is the inverse of what most sales and marketing groups ask of their development teams.
Less is more
So your mantra becomes, “Less is more, to get an earlier first release.” Rather than asking customers explicitly about feature X, Y or Z, one approach to defining the minimum features set is to ask, “What is the smallest or least complicated problem the customer will pay us to solve?”
Fast to ship / market
As a startup, your goal and battle cry should be “fast to market.” Fast to market simply means getting your first release in the hands of paying customers as quickly as you can. The teams should constantly remind themselves the first release is not the ultimate product.
Fast vs First
This fast-to-market strategy is distinctly different from a first-to-market strategy. First-to-market emphasizes competing with other startups to win market share quickly by low price, discounting, and the liberal use of marketing dollars in establishing a brand. Its key theme, whether explicit or not, is “get customers at any price.” In contrast, fast-to-market says if a new market is large, whoever wins the first few sales is not going to matter. What matters is learning how to make money from day one.
Free install?
Ask them this: If you give them your product today for free, are they prepared to install and use it across their department and company?
Develop + Validate
Chip had discovered InLook lacked what every startup needs: a method that allows it to develop a predictable sales process and validate its business model.
Unsuitable for Startups
Ask startup Sales VPs what their top two or three goals are, and you’ll get answers like, “To achieve our revenue plan,” or “To hire and staff our sales organization, and then to achieve our revenue plan.” Some might add, “To help engineering understand what additional features our customers need.” In short, you’ll get answers that are usually revenue- and head count-driven. While goals like these are rational for an established company, they are anything but rational for startups.
Questions to ask
Are we sure we have product/market fit? Who influences a sale? Who recommends a sale? Who is the decision-maker? Who is the economic buyer? Who is the saboteur? Where is the budget for purchasing the type of product you’re selling? How many sales calls are needed per sale? How long does an average sale take from beginning to end? What is the selling strategy? Is this a solution sale? If so what are “key customer problems”? What is the profile of the optimal visionary buyer, the earlyvangelist every startup needs?
Learning while executing
This is a manifestation of one of the fundamental fallacies of the traditional Product Development methodology when applied to startups. You cannot learn and discover while you are executing.
Selling when small
Better to know how to sell your product while your company is lean and small than try to figure it out as you are burning through cash sending your sales and marketing departments out.
Inexpensively
For consumer sales, finding the right entry to early customers can be equally difficult. Rather than making random calls, think of organizations and special-interest groups you can get to inexpensively. Can you reach customers through organizations they belong to, such as the PTA, book clubs, antique car clubs? Are there Web-based groups that may be interested?
Visionary customers
While the founders can get quite far in finding visionary customers, they usually have no skill or experience turning that relationship into the first order.
First release
The goal is to get earlyvangelists an incomplete, barely good enough product in the first release. The visionary customers can help you understand the minimum features needed to make the first release a functional product.
Earyvangelists
You may have talked to everyone in Customer Discovery and interviewed earlyvangelists but they may not know what’s important until they use the product. Later, you may find when the product is used this important feature only gets exercised every six months.
Good enough vs minimum features
This “ship it before it’s elegant and pristine” concept is hard for some Product Development teams to grasp. Its implementation is even harder. There is a fine line between shipping a “good enough” product with a minimum feature set and an unusable product customers call junk.
Customers vs influencers
Alpha and beta testers can be influential as recommenders in the sales process. Just don’t confuse them with customers. It’s important to inculcate a cultural norm in your company that you use the word “customers” only for people who pay money for your product.
Sell before product
Can you sell three to five early visionary customers before your product is shipping? The key to selling a product on just a spec is finding earlyvangelists who are high-level executives, decision-makers and risk-takers.
Validation » Revenue
You don’t need many of them at this point. Why? Because the goal is not to generate a whole lot of revenue (even though you will be asking for near list price); the goal is to validate your sales roadmap.
Promising customization == trap
One of the insidious traps of a startup is promising different customers a set of unique extensions or modifications. While it is sometimes essential to make such promises to get an order or two, the trap is you are building custom products. Building custom products is not a scalable business unless you explicitly revise your business plan.
Selling fast
Anyone can give a product away to get an order, but your goal is to sell an unfinished, undelivered product for as near to list price as you can.
Understanding
Understanding why a customer said “no” is more important in this step than understanding why a customer said “yes.” The goal is to understand where in the sales process you get turned down
Positioning
What’s the difference between positioning the product and positioning the company? Product positioning focuses on the attributes of your specific product in a Market Type.
Customer costs
(While it may seem obvious, customer acquisition costs need to be less than customer lifetime value. Dollars spent in branding cannot scale a flawed or unprofitable business model.)
Customer creation
To develop a successful Customer Creation strategy, you must answer two questions: (1) What type of startup are you? (2) What are your positioning messages (based on your deep understanding of who the customers are and what they want)?
No competition, No market
You are creating an entirely new market. A company creating a new market is radically different from one entering or reframing an existing market. While there are no market-share battles with competitors, there are also no existing customers.
Time frame
Startups creating new markets will not create a market of substantial size to generate a profit until three to seven years from product launch. This sobering piece of data is derived from looking at the results of hundreds of high-tech startups in the last 20 years.
Startup strategy !== Old company strategy
with monotonous regularity startups with no revenue still announce new products using the same positioning and product launch strategy as a billion-dollar, 75-year-old company announcing its 43rd follow-on product. This disconnect contributes to the high-burn rate and less-than-dazzling market penetration of more than a few startups.
Forgiving economy vs not
In a forgiving economy, heaps of funding will hide these problems, but when money is scarce, getting it right the first time matters. And that means matching your positioning, launch, and demand-creation strategies to the type of startup you are.
Don’t start PR early
That having been said, one of the most egregious mistakes a startup can make is beginning some of the expensive Customer Creation activities (advertising, heavy PR, etc.) too early. A key tenet of the Customer Development philosophy is there should be no serious spending in marketing until the company has a proven and repeatable sales roadmap.
Other avenues for first adopters
The good news is by their very nature, early adopters tend to ignore expensive mass-market advertising and PR events. Instead, they rely on other media such as the Internet, focus groups, and word of mouth. An early adopter launch is the beginning of a long, drawn-out education campaign initially targeted to earlyvangelists.
Mission-centric vs process-centric
The organization becomes mission-centric in order to scale up and cross the chasm between early and mainstream customers. When the company grows larger, it becomes process-centric to build repeatable and scalable processes.
Large company growth
Process is how large companies can grow larger, how they can scale departments and the company without hiring superstars. Large companies can hire thousands of average employees who can follow the rules and check to see whether the business is proceeding according to plan.
Earlyvangelists !== Early customers
In a new market, the motivations of early buyers and mainstream customers are substantially different. The earlyvangelists you’ve targeted in Customer Validation want to solve some immediate and painful problem or, in the case of companies, gain a large competitive advantage by purchasing a revolutionary breakthrough. The majority of customers, however, aren’t earlyvangelists; they’re pragmatists.
Burn rate
Therefore before selecting a new market as a positioning choice, entrepreneurs and their companies ought to look at their projected burn rate, look deep into the eyes of their investors and cofounders, and make sure this is the path everyone agrees to travel together willingly.
Mainstream customers are different
What lies ahead, however, is a different set of challenges: finding the new set of mainstream customers on the other side of the chasm and managing the sales growth curve. These new challenges require a different set of skills.
Mission !== Internal action
Most companies spend an inordinate amount of time crafting a finely honed corporate mission statement for external consumption and then do nothing internally to make it happen.
Marketers !== Product Managers
If the marketers are more technically oriented, the risk is that they will begin acting like product managers and start developing the Marketing Requirements Document (MRD) for the next product release. Mistakes like these are the natural tendency of creative people who no longer have a creative job.
Process of showing up
Simply showing up and doing the job is characteristic of work in a process-centric organization but anathema to a mission-centric one.
Info
important element of data gathering: what to do with the information once you collect it. Information dissemination is another cornerstone of agile companies and fast-response departments. Information, whether good or bad, must not be guarded like some precious commodity.
Understanding sales
All news, but especially bad news, needs to be dissected, understood, and acted upon. This means understanding sales losses is more important than understanding sales wins; understanding why a competitor’s products are better is more important than rationalizing ways in which yours is still superior.
Delegation
While this might sound obvious in a company where the CEO can no longer manage every detail, many entrepreneurs have a hard time letting go when it’s their brilliance and vision that created the idea of the company in the first place. This inability to delegate was one of Mark’s downfalls at BetaSheet and is one of the common issues when a founder is removed by the board.
People philosophy
executives should always begin delegating with a “trust but verify” philosophy.
Lean manufacturing
I’ve yet to meet a manufacturing person who does not reference The Goal when talking about lean manufacturing principles first.
Reading on manufacturing
Lean Thinking is the best overall summary of the lean manufacturing genre. Toyota Production System is the father of all lean manufacturing its simple tone is refreshing. The Goal - Eliyahu Goldratt Lean Thinking - James Womack Toyota Production System: Beyond Large-Scale Production - Taiicho Ohno The Toyota Way - Jeffrey Liker
Reading
What I Wish I Knew When I Was 20 and InGenious - Tina Seelig Good To Great and Built to Last - James C. Collins, Jerry I. Porras The Human Equation: Building Profits by Putting People First - Jeffrey Pfeffer Strategic Human Resources: Frameworks for General Managers - James N. Baron, David Kreps The Founder Factor - Nancy Truitt
Reading
Alfred Sloan’s My Years with General Motors is a great read, but not for the traditional reasons. Read it from the point of view of an entrepreneur (Durant) who’s built a great company by gut and instinct, got it to $200M and is replaced by the board. Then watches as a world-class bureaucrat grows into one of the largest and best run companies in the world. Make sure you read it in conjunction with Sloan Rules and A Ghost’s Memoir If you’re an entrepreneur, the one founder you probably never heard of but should is William Durant.
Sales organization == not needed
first two steps of a startup none of these skills is relevant; in fact, these big-company skills are toxic. They have a startup building sales organizations before they are needed and staffing at the wrong time.
Hiring
In a startup you don’t need to hire and manage hundreds of engineers. Knowing how to schedule the resources for five-year software projects and run beta tests with tens of thousands of users is immaterial at least right now. Instead, what a startup needs in someone with a keen product vision, an unerring eye for a minimal feature set, and an ear attuned to feedback from the Customer Development Team.