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.
Andrew Chen
Brant Cooper
Dave McClure
Eric Ries
Jamie Siminoff
Steve Blank
Nice to see you posting here Patrick. It’s a good, straightforward breakdown of the basic flow without getting lost in detail and exception cases. Of course, the flow from MVP to proven must-have signal won’t always be smooth but that is the whole point of constant iteration and validation.
One of the most significant discoveries in medicine in the last decade has been that X-Rays are not a harmless diagnostic, and in fact incur a small increase in the risk of cancer. This does not mean that you should not get X-Rays, but you have to balance the risk versus the benefit.
I worry that the diagnostic Sean Ellis proposes contains a veiled threat to discontinue the product and may prove especially toxic to early stage firms in the B2B space.
I would never suggest to a business prospect that my product might no longer be available, which is exactly what this survey does. Especially in a situation where you alternate is to ask for payment, which would seem to be an even more convincing argument for product-market fit, I don’t see any benefit to the survey.io approach.
A business customer is already worried about a startup going out of business, you should take great care not to to anything to magnify their concerns.
I cannot speak to the survey.io accuracy in a consumer or media (advertising driven) market, but I would be extremely cautious about doing anything that would suggest less than 100% commitment to your product and your customer’s success in using it in a B2B market.
Thanks Sean, I agree that there is some risk in asking this question (just as there is risk with any test that may temporarily hurt results). It is critical to build a great relationship with the early base of users, but their most important value is helping you figure out a repeatable formula for acquiring, gratifying and monetizing the next million+ customers (or possibly 1000+ if you are targeting enterprises).
Anyone who shares Sean Murphy’s concerns about the key Survey.io question can add something in parenthesis after the question such as the following (This question is intended to help us understand whose needs we are currently meeting and why. We are committed to continuously improving [insert product name] to better meet your needs). This should eliminate any customer misperceptions that the question is a veiled thread to discontinue the product. I haven’t added this qualifier since I’ve only seen 2 or 3 customers express concern out of the 20,000+ responses to the survey that I’ve reviewed. And I always take it as a very positive sign when customers express these concerns. Finally, I wouldn’t recommend running the survey until you’ve had some strong direct customer feedback in interviews.
Overall, I have found the survey very useful in determining when a startup is ready to start transitioning to growth (I shared it with the community because I figured other people might also find it useful). Trying to grow too early can easily kill a startup, and waiting too long can result in a missed window of opportunity. This survey provides a concrete milestone for making the shift at the right time. I agree that asking for money can also be a helpful proxy, but as many infomercials demonstrate, people can easily pay for something that offers very little gratification once they actually use it. I’ve seen several startups that were temporarily able to drive growth and sell product only to have growth crater within a few months. In each case they were well below the recommended 40% benchmark of people that would be very disappointed if they could no longer use the product.
@Giff
“Of course, the flow from MVP to proven must-have signal won’t always be smooth but that is the whole point of constant iteration and validation.”
Absolutely, couldn’t agree more. The flow from MVP to must-have signal (if you even get one!) is most assuredly very turbulent, at best.
Very thought-provoking read. Based on my own experience in ground-zero startups, much of this resonates. Totally appreciate your point on “Pivot not jump” — and peeling that away, it’s really scientific method, isn’t it? Question: Looking at Surveyio, when you determined from 100 startups that 40% (suspect-MVP users would be disappointed if couldnt use product anymore) was a good threshold for identifying MVP, was that always determined with freemium users or a mix (some freemium, some paying)? MVP for freemium (allowing one to establish volume marketshare – critical these days) is different than for paying. Does your book address this gap?
Hi Lisa, your question is directed at Patrick, but I’ll share my experience. With a freemium business, you want to survey both groups separately. Having run the survey multiple times with freemium businesses, it’s surprising that this is no clear pattern. Sometimes the free product has a much higher percentage of users that would be very disappointed without it, and sometimes the paid product does.
@Lisa
Thanks for your comment. Just to be clear, Sean is the creator of Survey.io, not me.
With regard to your comment about “it’s really scientific method, isn’t it?” – I couldn’t agree more. In fact, Brant and I note in the book:
“At an abstract level, Customer Development…applies an engineering,
or scientific method, to what is really not a
scientific endeavor (building a business).
Your process will resemble the scientific
method by following these steps:
• Observing and describing a phenomenon
• Formulating a causal hypothesis to explain
the phenomenon
• Using a hypothesis to predict the results of
new observations
• Measuring prediction performance based on
experimental tests”
—
In the book, we don’t spend a lot of time on freemium, as the book is an outline and primer for getting to Product-Market Fit, which is another way of saying Customer Development is a malleable,
customizable, and bespoke methodology for
dealing with the chaos of the real-world.
Back to freemium, I am not sure that going with a freemium model is as simple as making a decision to make a grab for marketshare – I think it is considerably more complicated than that, and highly dependent on what sort of market type you are addressing (new, existing, re-segmented etc).
For further insight on freemium, I would suggest reading any of Sean’s posts on the matter as well as Ash Maurya’s and Lincoln Murphy’s.
http://www.lincolnmurphy.com/2010/01/new-paper-reality-of-freemium-in-saas.html
http://www.ashmaurya.com/2010/07/3-rules-to-actionable-metrics/
Thanks, Sean and Patrick for answering my questions. And thanks, Patrick, for the leads on the Freemium articles. Anyone using scientific method inside a marketing context is totally cool by me — unfortunately many, many people think “marketing science” is an oxymoron. Look forward to reading more from you folks!
My first contact with such methodology was the SSL conference, wich I watched live here from Brazil. Ever since, I’ve been looking at entrepreneurship in a different way.
I thought I coukd easily start using the concepts at the startup I’m working with (EurekaClick.com), wich is a social network for companies that want to export or import their products. I am however having a hard time trying to engage my partners in following the techniques I’ve learned. I guess it’s part of the process and this very post will be a great way to start showing them what a lean startup is.
Any suggestions about what the next step should be?