How to pick and choose early users / customer for your #napkinStage startup?

The first few customers (or users) usually set the tone for your startup. They are the ones with either acute pain or the burning problem, and the earliest of early adopters. Usually, I have found that most entrepreneurs get their early customers because of the relationship they have with them OR they solve a really pressing problem for their customers.

When I talk to most entrepreneurs, one of the first things I recommend to them is to segment their potential customers.

The discipline of finding the factors that differentiate one set of your potential customers from another based on a set of characteristics is customer segmentation.

There are 3 important questions you will need to answer about your customer segmentation strategy before you recruit potential customers.

Most entrepreneurs, at the napkinStage end up getting customers who they know, but sometimes may not have the pain point as much. Else they end up getting customers who have the pain or are unwilling to try anything “not proven”.

When you have been out trying to get early paying customers, you will realize quickly that customers have one of several reasons for not buying or wanting to try your solution.

1. They are risk averse, and not early adopters, so while they have the pain, they use their existing  manual or alternative techniques to solve the problem.

2. They are able to deal with the pain, since they get a sense of job security knowing that they know how to solve the problem, and no product, machine or algorithm can replace them.

3. They believe the ROI from solving the pain will be negligible and their time and money is better spent elsewhere.

4. They want more mature solutions so they can handle their “special situation”, which is unique enough that no early product can customize it and be less expensive at the same time.

5. They believe the solution will weaken their position since it will solve the problem that exposes their “value-add” to the company.

6. They are not emotionally vested in either you or your startup, so they are not willing to take the leap of faith to try an early version of the product.

7. They actually dont believe your solution will solve the problem and are willing to wait and see some more proof until a point that it does.

These and many other excuses / reasons are the ones I have heard of consistently when I have been trying to get early customers for most of my startups.

If your potential customers sees a big benefit to:

a) their personal agenda (promotion, makes them look good, etc)

b) their position in the company and finally

c) their company’s standing in the market.

Picking your early customers though, is almost always a combination of personal relationships, built over time and solving a problem they have that is so intense that they are willing to try anything to get rid of it.

Problem Development Approaches

Problem Development – 3 approaches to find good problems to solve

Yesterday when I wrote about problem development, I assumed that there would be a lot of information written about it. Turns out I was wrong. A simple Google search on “problem development” returns my blog post that I wrote yesterday in the top 10 results. I also got 2 emails from entrepreneurs yesterday asking me to share some more resources on problem development. I did not have as many, so I thought I’d write a few posts on what I have learned on problem development.

Most entrepreneurs are told to “scratch their own itch”, or solve a problem that they have themselves. It is good advice, but only one of many methods to find problems.

Most B2B companies tend not to either use their product or have the problems for the type and kind of users they are trying to solve problems for.

There are 3 ways I have seen people find problems to solve.

Problem Development Approaches

Problem Development Approaches

1. Follow the money: The founders of Ariba, where I worked, were not OSM (Operations Spend Management) experts by any means. They did not “have the problem” of non-production, non-manufacturing spend. The way the 2 founders came up with the problem was to look at spending patterns of large companies using classical analysis of expense statements. They spent time looking at where companies were spending money, where they are making money and finally figured out that non-plan, non production spend on “pens and paper clips” was a fairly large part of most businesses.

2. Domain expertise: In starting Infosys, the founders were not having the problems of Y2K, but they knew enough customers, who had the problem. The main reason was that they spent enough time building, supporting and managing COBOL based systems for large companies. They did not have the problem of managing the systems themselves, but their customers did.

3. Scratch your own itch: If you have neither deep domain expertise or ability to analyze the market in a financial manner, you can solve problems you have. What I have seen from my own experience is that while, we hear about the successes (Facebook, Microsoft, etc.), most of the not-so-successful founder-led-problems are no so frequently mentioned. Many suffer from “Clustering Illusion” bias, or the tendency to erroneously consider the inevitable “streaks” or “clusters” arising in small samples from random distributions to be statistically significant.

Stair Step Growth

Problem Development Learning: Dont explain what your startup does to a “layperson”

Most entrepreneurs following the Lean Startup Methodology or the Customer development methodology will tell you that it never really works in a linear, sequential fashion, neither does it follow the prescribed set of steps.

The primary reasons are either because you end up getting some feedback or learning during the entire process that changes your perspective quickly or get distracted.

I had a chance to talk to 3 entrepreneurs last week, who had all shut down their startups. One of them got a job at Facebook, after raising money from VC’s (tier 1 VC’s at that), another has started on a new venture and the third is going back to his previous role at a large company.

All 3 of them had spent upwards of 6 months and the most was 18 months in their startup. Surprisingly, none of them mentioned “lack of ability to raise more cash” as their reason for failure.

They all mentioned the challenges of “customer development”.

Stair Step Growth

Stair Step Growth

The startup development process comprises of 5 steps – problem development, customer development, prototype development, product development and revenue development.

I am showing these in a stair step approach, which suggests a sequential method, but I fully understand it is rarely so.

Problem development is a relatively new phenomenon, and your goal is to do a good enough job, fine tuning and understanding the customer problem in detail.

What I have found that in the quest to explain “what is your story” to a layperson, most entrepreneurs end up explaining the problem their solution solves, not the customers real pain point.

The biggest challenge for you the entrepreneur is to have the problem statement nailed in as great detail as possible when explaining it to your product and development teams. Else the “high level” problem statements, which you will use with customers or investors will result in poorly thought out solutions.

There are choices that you will have to make daily and hourly about product, experiences, features and direction of your product. In the absence of having a detailed set of problem statements – which constitutes the problem development step, most of these choices will be sub optimal.

Focus on problem development in conjunction with customer development for best results.

3 C's for getting hired again

Fired and interviewing again for the same role

Lets say you left the job you did for 2-3 years, i.e.the co-founder of a startup. You were fired, “let go”, decided to leave or “step down”. Either ways, you are doing something different than what you started.

Then time passes and you are asked to step-in again – for the same role, but a different job than before. Same role since you were the founder and CEO, but different job since the company is bigger (or smaller) now, and has a different set of challenges than you left before.

This is not a hypothetical situation – this happens not only at bigger companies – Zynga, Yahoo, Twitter, but at most startups after a significant round of financing as well.

You will now have to “interview” for the role again.

3 C's for getting hired again

3 C’s for getting hired again

For any CEO / founder role, the board will be involved, and probably initiate the search, but also get inputs from the current management team and the “interim CEO”.

The new team will have to determine if you are the right candidate for the role, given many criteria, but we can boil it down to the top 3 that matter.

1. Competence: For any role, not just the CEO, “can the person get it done?”, is the first question most of us ask – skills, expertise, knowledge and capability to execute among other things are a must have. These are what we call table stakes.

2. Communication: A key skill and capability that sits head and shoulder above all others is the ability to communicate – written, spoken, one-one and one-many. We also put ability to motivate people to take action into this bucket.

3. Culture: Unlike in larger, older and more established companies, culture plays a very important role in smaller, younger ones. Building the right team and ensuring they are all working towards common goals and aligned objectives and is important to attract the right people for the role.

So the million dollar question to ask yourself as a founder is:

If I were to interview for my role as an outsider, will I get this job?

I know a founder, who goes through a formal interview process EVERY YEAR with 2 of his board members, 3 of his direct reports (different ones each year) and one outside executive recruiter.

His rationale for this is simple – it keeps him honest and gives him a clear picture on things he needs to do for the next year in 3,6, 12 month time horizons.

It is a great trick in your book to have. Try it.

Tell me if it helps you.

Interviewing for a job you already have. Will you make the cut?

Customer Development Hierarchy of Needs (Maslows theory applied to Customer Development)

Maslow’s hierarchy of needs applied to customer development

Yesterday, I had an entrepreneur reach out to me to ask me a few questions about his #napkinStage idea. He was doing customer development, he said and before he’d get to far into the development of the product, he wanted to talk to customers.

One thing that he mentioned to did not surprise me as much, but was indicative of the state of the challenges faced by all entrepreneurs.

I have sent over 110 emails (20-30 were warm introductions, rest were cold).

“I have been trying to get to talk to potential users on the phone so I can ask more open-ended questions”, he said. “I have gotten 2 people willing to talk on the phone”. The rest have been reluctant to phone and prefer to email or message.

Yesterday I was reading the survey results by attentiv (the graph shows the # of mobile phone users who use various capabilities on the phone with some level of frequency.

Social Networks, Email and Text, No Calls

Social Networks, Email and Text, No Calls, Credit: (attentiv)

Turns out, the entrepreneur was facing the problem that 90% of marketers face. We just dont like to talk any more.

I would have not been surprised about this if this was only that they did not want to talk to strangers.

That’s not the case though.

In the customer development hierarchy (or Maslow’s hierarchy applied to customer development), while the pre-purchase may be the pinnacle of the customer development outcomes, the customer calls are the hardest.

Customer Development Hierarchy of Needs (Maslows theory applied to Customer Development)

Customer Development Hierarchy of Needs (Maslows theory applied to Customer Development)

I have seen many of the entrepreneurs at our accelerator give up on the “Talk to actual customers on the phone” portion of the customer development sprint.

This is for both B2B and B2C companies.

Most customers are comfortable with online surveys, many are willing (even at the expense of getting spammed) to even provide their email to be notified when a product gets launched. While pledging on Kickstarter and pre-paying revenue are the ultimate goals and more indicative of traction, the customer call still is the holy grail that every accelerator program asks their participants to do.

I think that will have to change over the next few years. If messaging is what most of the customers prefer, I suspect entrepreneurs will start to focus on getting potential users to “join their public #Slack channel”.

Open discussions are much more simpler and easier to manage using Twitter or Slack, compared to phone calls, which require a lot of commitment in terms of time, attention and focus.

Most people are losing the stamina and energy it takes to have a long conversation on the phone.

Winning at Hackathons

Are hackathons a great resource to build your initial prototype?

Having attended, participated and judged over 50 hackathons in the last 3 years, I am a huge fan of the process, the energy and motivation that goes into making one happen.

My first hackathon was in San Francisco 2007 at the IPhone Dev Camp in San Francisco at the Adobe offices. I was new to iOS programming and wanted to learn the process to build apps. I was largely interested in learning what it took to build an app, not necessarily to build a company.

At this event there were about 40-50 people who gathered on a Friday. Most (over 60%) were first time iOS developers, who knew HTML, some php and Java, but had not build for the phone at all.

For those who have never been to a hackathon before, they tend to follow a fairly simple format. Developers, designers and engineers get together for 50-60 hours (Friday to Sunday) and come with some skills, ideas and passion to build something useful over the weekend.

In most hackathons there are non-developers as well who come to “pitch ideas” they want to work on and are looking for a team. If you are not a developer, I’d still highly encourage you to go to a hackathon and use it as an opportunity to learn to code.

More than to look for engineers who can help you build the product or prototype, I’d say the biggest value from a hackathon for non-developers is to reinforce the online learning at places such as Udemy, Courseera and other resources.

I have met several startup teams whose founders have met at hackathons.

If you are a non-developer, the tendency at the hackathon is to pitch an idea (you are given time to do that during the first day) and try to recruit engineers and designers to help.

I dont think that’s a great use of time.

If you are only the “idea” person who can “hustle”, you end up attracting a set of people who are non-developers themselves. The best way to gain the confidence of a good team of developers and engineers is to appreciate the work they do and find ways to help them, even if it is a small part of the work.

Even starting to build wireframes, some basic Photoshop skills or HTML / CSS is more valuable than just “talking” about your idea and showing others how “passionate” you are about your idea.

The art and science behind getting a great team to help is to be prepared with as much information that sends “signals” to others that you are likely to win the hackathon.

Ideas rarely win hackathons, functional prototypes with a great story and pitch do.

If you can show that you have made great progress with your idea over several iterations and need help to start getting further along with the product or prototype, you will be able to attract a much better team.

To answer the question: “Are hackathons a great place to build your prototype”? Absolutely yes, if you are well prepared. People that have prototypes built at hackathons are those that have wireframes completed, the customer development done and also have made some progress towards their mockups.

5 Killer Skills for Non technical Founders

The 5 most important skills you need to master if you are a non-technical (developer) startup cofounder

Over the last few years, I have met and connected with over 55% of founders who are non-technical (actually most are technical, but they are not developers). The standard advice I would give them was their role was to acquire users (or customers):

A plan to acquire, nurture and grow users (customers) with as little money as possible.

After spending time thinking about this over the last few days, I think there is more than just user acquisition that non-technical founders can help the startup with. There are 7 skills (in no ordered priority) that I think will help the company tremendously.

5 Killer Skills for Non technical Founders

5 Killer Skills for Non technical Founders

1. User acquisition and customer development. Getting early traction is critical and in most cases more important than most other things at your startup. While it is becoming easier to build and create apps and websites, getting early users who can give you feedback on the product and become fans and champions is hard. Understanding user behavior and motivations, spending time learning about how they would use the product is critical.

2. Generating shareable content (writing great headlines, producing videos, podcasting, etc.). While content is king, the more important skill is writing killer headlines. You need good content, but without great headlines, great content is useless. Getting awareness for your startup or product without the money early on to spend on advertising, is crucial to early traction and building your brand.

3. Learning about techniques to generate awareness (building connections with Press, Bloggers and Influencers) among customers and users. Besides generating content, figuring out ways to get more of your customers to share the product with new customers (increasing the virality coefficient) is a key skill. The best way to generate awareness among potential customers is to get existing customers to say good things about the product. The next step is getting them to share their experiences with others.

4. Cultivating and managing relationships with a strong potential investor pool. Generating enough inbound inquiries because you built a great product and got good press and coverage around it is one of the top things you need to be skilled at doing. Ensuring that you have a good product is half the battle. The next step is to get customers. To help you scale, would then require an early set of investors. Building investor relationships, targeting the right early stage funding sources is a crucial skill.

5. Signing up beta customers, creating activity flows and user models, building the wireframes. Even if you are not technical, you can build wireframes using standard tools to share the concept with users during your customer development phase. If all you have are PowerPoint skills, use them. If you understand the domain and can build the customer use scenarios, I’d build those.

There are some other “tactical” items that fall into the purview of the non-developer cofounder including the skills to negotiate contracts, get as many “free” services as possible, apply to many freely available programs such as accelerators, pitch showcases, etc., but those are secondary.

Over the next few days I will outline each of these in detail so I can help non-technical cofounders.