How to Build and Finance a Great Start up the coming 10 years(2)

This is the second part of the article

2. Get out of your start up base to test the problem

Getting out of the start up base means that we want to test mainly the problem and find out about other aspects of the business model . This includes of course the customer segments , customer relationships and channels . In this stage we are not yet interested to find the exact best customers as we are testing the problem first so we need a broader spectrum of customers to be able to find product market/fit . But we are looking for early adopters in this stage (Influential and more innovative customers that want to test new products/systems/business models ) . If we cannot sell to early adopters will be almost impossible to sell to the early majority ( main stream customers ) .

The Key characteristics of Early Adopters are :

  1. Have a problem or need
  2. They understand they have a problem
  3. They are actively searching for a solution
  4. Sometimes they are trying to find a solution themselves
  5. They have or can quickly acquire a budget

In this phase we need to answer 3 key questions :

  1. Do we really understand the customer’s problem or need ? or Have we found a need that even the customers do not know they have ?
  2. Do enough people really care enough about the problem for this to become a huge business ?
  3. Will they care enough to tell their friends ?

If all 3 questions are answered with a sounding yes then Product/market fit is achieved .

To answer these questions we need to execute the following key steps :

  1. Design experiments for customer tests
  2. Experience the customers at work where they really spend time
  3. Prepare for customer contacts
  4. Testing customer understanding of the problem and assess its importance for the customers including face to face as a must . People often lie on the web !
  5. Gain understanding about the customers
  6. Capture competition and market knowledge.
  7. Take competitors to lunch

As in this stage we want to understand if people care about the problem and listen to customers so we do not need to have working prototypes really . Instead a basic picture or a simple power point or a video or a basic website simulation ( sometimes testing various options with a wireframe prototyping tool ) can be used for the purpose .

A few rules apply for this part of the process :

  1. Need enough number of customers to be able to draw conclusions
  2. Use various tools to find the customers (peer intro is the best , own and team connections , social networks lists , qualified lists , favors from friends , family , lawyers , investors , accountants ).
  3. The problem presentation is designed to elicit info from customers !
  4. We present a written list of problems , a list of current solutions and our proposed new solution . 3 Columns . Then we let the customers talk ! and we listen !!
  5. A few clever questions to learn a lot more are :
  • What do you think the problems are ?
  • Do you miss any problems ?
  • How do they rank the problems?
  • Which problems are MUST to SOLVE instead of nice to solve ?
  • What is the biggest pain in how you work ?
  • If you could change 1 thing what would it be ?
  • What are the 3 other smart people like you I should talk to ?
  • Any other important question I should have asked you ?
  • What are the most important blogs , journals do you read ?

Based on a matrix with customers , with all responses and after establishing priority criteria we need to draw a conclusion if there is problem and if people care !

  1. 3. Get out of the start up base and test the product/system solution

In this stage first we :

  • Update the whole team in details about the outcomes of phase 2 ( present learnings , meaning and insights )
  • Decide if we change or proceed
  • Decide the minimum feature list based on the input of the early adopter potential customers
  • Eventually update other business model attributes

After that the next steps are to adapt ( this will take some time ) our solution ( prototype , demo unit with higher fidelity minimum viable product ) ) and prepare to visit the customers that are qualified and have heard/seen the problem presentation ( early adopters) to show them the solution to the problem and receive their response . Expanding to more potential customers that have not participated in phase 2 lay the ground work for selling something in the next phase of Customer Validation .

During and after presenting the solution it is vital to record customer responses for questions like the following ( This is not a complete list ) :

  • What our product solve for customer and what not
  • How do they solve the problem today ?
  • Key features needed / not needed ?
  • Do they think it is different ?
  • Do they think it is creating a new market ?
  • Is it better version of an existing product ?
  • What would be the ideal solution ?
  • what do customers think about the proposed revenue model and pricing ?
  • Key decision maker / who else to see ?
  • or are they bored ?....

Prepare in advance a list of questions covering all important parts of the Business model and ask the customers . A few useful tips for conducting the interview are :

  • Opt for one to one discussions instead of large groups
  • The main purpose is to delete unnecessary features instead to add new ones

  • Do not attempt to ask all the questions to all customers as some customers know more about certain aspects.

Measure Enthusiasm is the most important !! There are a few options :

  1. Customers love the product and no changes are needed
  2. Customers like the product but they want this or that additional feature at launch ( for this case we need to balance customer wants with development time ) . Normal people believe if it is not broken it does not need to be fixed . Engineers believe if it is not broken it does not have enough features yet…………….

Customer discovery is to get the minimum Viable product (overall functionality and not only design ) into paying customer hands as quickly as possible. Here the entrepreneurial experience and the gut feeling guide the go/no go decision .

3. Customers do not see much of a need for the product

For web / mobile products the enthusiasm is reflected through :

  1. Customers willingness to register
  2. How often the customers come back after the first visit
  3. How long do they stay
  4. How many visitors refer their friends
  5. Conversion rates from acquired visitors to activated and from activated to active users .

In general for technology products lukewarm response indicates a problem usually characterized from lack of product/market fit : Not enough market for the product or lack of demand for a product in a vast market . In such case the issue is mainly value proposition and customer segmentation .

In any case depending on results based on facts ( not only intuition ) there is a need to decide to change drastically (option 3 above ) or update the business model and move to the next phase . The next phase will answer this question .

  1. 4. Verify the business model and change or proceed

This is a very critical stage for a new start up development . To decide about change or proceed there are 3 critical questions to be answered :

If we answer yes to the 3 questions ( for which we need a board meeting) then we proceed to the stage of the customer validation phase where we develop the product/system/solution , start sales and see if the business model can scale e.g 10 times or more .

Have we found Product market fit ?

  1. Are we attacking a serious problem or filling a compelling need ?
  2. Does our product solve the problem or fill the need for your customers ?
  3. Are there enough customers to deliver a sizable business space/opportunity ?

Who are our customers and how to reach them ?

  1. Can we describe the customer profile ?
  2. Do you know the customer well enough to know how to pitch the product to him ?
  3. Are there any market segments that are different ( bigger , faster , better , totally new ) than others ?
  4. Do we know how the product/system moves from our start up to the end user along with costs and marketing ?

Can we make money and grow the company ?

Based on customer report cards ( market size , price/revenues , costs , competition ,… ) create a basic 2-3 year revenue , cost and cashflow plan to evaluate our financial situation and if the business model is scalable .

Based on all above if we have a positive answer to the question :

“ Does the customer discovery findings pointing to a big enough market that is hungry for our product and we can do it in a repeatable , scalable and profitable way “ ? then we proceed to the next phase ( Customer Validation >> first test of sales as part of Business Development ) otherwise we need to change.

Next part will deal with Customer Validation .

I always Welcome and appreciate comments or dialogue

Mike Mastroyiannis can be reached : mike.mastroyiannis@gmail.com

Mike Mastroyiannis

Inspiring Passion & Success, CEO, Founder, COO, Board Director, Management Team, Strategy, Innovation, Sustainability, Change Management, Risk Management, Start-ups/Scale-ups, IoT, Author "Xponential Growth", Consulting.

9y

Indeed we should never forget to check with the early adopters. Thank you.

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Luc Chaoui

Product Marketing Manager driving wireless connectivity solutions for IoT markets. Focused on go-to-market strategies, product roadmaps, revenue growth. Skilled in wireless systems, market analysis for dynamic segments

9y

Great part 2 of the article. I agree with you in so many kepoints. I have seen many startups fail with amazing products/concepts, that were simply too ahead of their time. Success many times depends on how mature and ready the public (society/consummer) in seeing/accepting/adapting the value of your new product.

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