Category Archives: Learning

How to put together a customer validation framework for your ideas?

Like most people, some days I have a hundred ideas and other times I go for 100 days without a single idea that I think is worth spending time on.

The difficult part of these ideas is that many most of them are practically useless. They are not grounded in real problems, and are likely a means for the mind to play some games where it feels good to have some exercise for that moment.

Over the years, I have put together many frameworks for thinking about problems and ideas and categorizing them –

a) throw it away (meaning dont think about it any more),

b) file for later (meaning document it on my notepad, to review in a few years or so),

c) do some research (document the market findings) or

d) pursue it for validation (talk to people).

There are 5 steps that I take to understand whether the idea is worth pursuing.

The elapsed time for these 5 steps, in my experience lasts from a 4 weeks to 3 months on average.

Customer validation framework and process

Customer validation framework and process

1. The first step almost always is doing secondary research on the web using available resources. I have found that it is fairly easy to get a ton of “expensive paid research reports” by just typing the name of the market, followed by keywords like market, landscape, overview and then filetype:pdf in Google.

There seems to be someone always who has uploaded a recent report from a key investment bank or a analyst report that’s available for free.

During this step I try to document with the intent to publish my learning as a blog post. That’s key, I have found, to ensure that I do as comprehensive a job as possible. It also helps you in steps 2 and 3, as I will share later.

The best way to document is to be honest and write down a bunch of questions you might have about the market, problem etc. Summarize as much as you can, in your own words, instead of cutting and pasting.

2. The second step is actually having a discussion with at least 10+ “industry insiders” to help understand the questions where the data is inconsistent. It is important to have insider discussion before customers only because they will tend to see and know “trends”, whereas customers tend to give you their current problem or their sense of the workarounds, which they seem to think work “fairly well”.

To get to talk to 10+ insiders, you will need to offer them something in exchange for their time. Most insiders are fairly busy and tend to not want to help teach a new person the in’s and out’s of a new market. Here is where you assessment of the market and the 4-5 reports come useful from step 1.

I am consistently surprised at how many insiders have not read (they have head of it, but wont have read) a recent industry report on the space. The fact that I read them in entirety and can provide a Cliff notes summary is very valuable to them.

3. The third step is to get a good sense of the market size. Since most of the research reports will give you a total market estimate, top down, as opposed to an addressable market, bottoms up, number, I find it valuable to do some empirical evidence gathering for the bottoms up analysis.

The best ways I have tried to do this is getting proxies for the market size – Google search volume is a good indicator for certain types of markets, or in other cases, create a series of blog post on LinkedIn and see the traffic volume, try segmentation numbers with Facebook ads etc.

If you are up to spending some money to recruit potential customers and get some email conversations, I’d recommend Google Ads as well.

4. The fourth step in my process is to clarify and crystallize the problem and solution and get primary feedback online – I have found Launch rock for consumer applications work well for this. Create a simple page and drive traffic – either with ads or social and get a sense for interest.

For B2B, just offering your summary of the research on the market as an eBook (from step 1) will suffice to get emails of potential prospects. This also helps you build a target list of customers.

5. The step five is actual customer interviews. This is the most time consuming step and takes a lot of effort, which is why I end up doing it last. I would recommend doing it earlier, if you want to get a quick sense of the market, and maybe you might end up doing it all along, but this is a very intensive process, so I end up breaking it up into chunks and doing it all along while I am going over the steps 1 through 4.

For customer interviews, I try to address the problem question and the adoption question. 

  • Is this a real problem? Is is a big enough problem for them to look for a solution?
  • What will it take for them to adopt a solution? Adopt my solution?
  • How much will they be willing to pay to adopt?

These questions help me address both the solution and the go to market problems of marketing and pricing.

There are some caveats to my process and methodology:

1. This does not have to be a waterfall approach. The agile version will ask you to keep doing these 5 steps in parallel and keep doing them consistently. Just because you are following an agile process though, does not mean you dont have a list of steps to follow.

2. These steps work very well for software. What I found for IoT hardware is that a Kickstarter campaign works better for a hardware idea to supplement step 4.

3. For consumer facing applications and eCommerce companies, there is no substitute for putting a framework page and putting a buy button (instead of LaunchRock, use Shopify – free version).

4. Document, document, document. The more you write the more your thoughts get clarified and you have new insights. Only listening to customers and insiders is useless. Thoughts come, you process them, and you forget more than 50% of the insights.

5. Be very cautious and deliberate when you go from one step to the next. 90% of ideas and problems are really not worth pursuing, unfortunately. You are better off discarding your half baked, insolvent ideas, instead of wasting 6-12 months pursing it, only to realize you dont quite have a real market need.

Does your idea matter at all to anyone but you as an #entrepreneur?

Short answer – it does a lot, but not as much as you think it does.

There is a never ending debate about how much do ideas matter when you are starting. There are arguments on both sides of this thesis. There are folks that believe ideas are dime a dozen and execution is everything and others who believe that ideas are what differentiate the great entrepreneurs from the mediocre ones.

So this makes me believe the answer is somewhere in the middle. A good idea executed well is obviously better than a good idea executed poorly. Similarly a bad idea executed well is marginally better than a bad idea executed poorly. Either way, execution does matter as does the idea.

I put a chart together based on my experience of the top 1-3 things that different folks care about the most when you are progressing along stages of your startup.

The first thing to keep in mind is that the idea matters most to your potential customers.

Which is why it matters so much.

Your customers may care about the team, the problem you are trying to solve (it better be important to them) but they certainly dont care as much about your market or your growth.

What Matters When At A Startup

What Matters When At A Startup

At the napkin stage when you are trying to recruit advisers, and early folks; your team and market matter to them the most, then possibly the idea.

The next stage (if you are going that route) at the crowdfunding stage, the idea and your story matter the most. The market maybe somewhat matters, but the team does not seem to matter as much since they are largely the “people” behind the video.

The stage beyond that (again if it applies), which is the accelerator stage, the team and market matter the most. The assessment of whether the team can pivot plays a lot into this stage.

At angel investor stage the traction seems to matter most, followed by team. Enlightened angel investors care more about the team and the market, but accelerators have trained the startups and angels to write checks based on “traction”.

Finally when you are ready for the venture capital round, lots of things matter, but most VC’s will tell you that the market you operate in and the team matter the most, followed by growth in metrics.

If you look at the chart above, the obvious conclusion you will come to is that idea does not seem to matter to most people.

If, however you expand the “crowdfunding” stage to “recruiting customers“, then at that, stage ideas matters more than everything else.

So the idea does matter, it matters a lot and it matters to a key (if not the most important) constituent of your startup – the customer.

Does it matter as much as you think though?

That answer is also no, because, the other “constituents” including potential employees, care about working on a great problem, getting paid well and being challenged (in that order hopefully).

So, when any of your investors or potential advisors or an accelerator tells you “Ideas dont matter” – you know they are wrong, but not as much wrong as you really think they are.

Why an #entrepreneur’s LinkedIn profile is more important to get right than their website

Over 70% of the introductions to investors and potential customers is now done via email and over 66% of the email is read on the smartphone.

Put those two numbers together and you it will be likely that you will be introduced to an investor you want to pitch over email, and they will (hopefully) hear about you from someone they know (or trust as well).

The first thing people do when they get an introduction via email is check the person’s LinkedIn profile.

According to the LinkedIn heatmap profile the first thing people look for the photograph followed by the most recent status update – even on LinkedIn.

LinkedIn Heatmap

LinkedIn Heatmap

The next few things people look for  are your most recent role, followed by your educational qualifications.

Only after that do people check out your website or mobile app.

I have seen many cases where the investor will push the meeting to later if the LinkedIn profile is “incomplete” or “not very appealing”.

While your app or website might be professionally designed and be very appealing if your LinkedIn profile is not, you will likely not get to the next step very quickly.

Most investors will Google search you as well and click on the first three links – For most people the first two links are LinkedIn profile, AngelList profile (if that exists), followed by the website bio.

So, that makes it all the more important to get your LinkedIn profile more appealing than your website.

From “Pay per usage” to “Pay for Performance” – pricing transitions for #startups

Over the last few weeks I had a chance to review 89 of the companies to understand their free to paid conversion and also a chance to talk to 13 companies. What I learned was that time spent on the pricing page was a key indicator of conversion and you can A/B test your pricing page for colors, position of your highest and lowest prices, number of plans showed, feature listing and your call to action. The names of your pricing plan also has a significant signalling effect on your customer’s perception of your product.

I wanted to showcase today the biggest transition pricing plan pages will have over the next decade.

The move primarily affects B2B companies, but is being driven by consumer Internet companies currently such as Uber with their surge pricing.

There are 3 steps towards the maturity of the pricing model that I foresee.

The first step is the transition from perpetual pricing or “pay unfront” pricing to subscription billing or “pay as you go“.

The second step is the transition from subscription billing and “pay as you go” models to utility billing or “pay for usage“.

The third step is the transition from utility billing or “pay for usage” to outcome billing or “pay for performance“.

Why was perpetual pricing or “pay upfront” popular?

Perpetual pricing was easy to understand, for most accounting and finance teams.

Paying for software and amortizing it over a period of time was easy to register on the financial records. The initial assumption was most of this software was going to be in “perpetuity” or forever. It was over 20 years from 1980 to 2000 that most folks realized this was not true. Software changed constantly, had to be upgraded and the 20% annual maintenance did not pay for the new versions.

Why did we transition to pay as you go?

When finance and accounting teams realized that only a fraction of the software that was purchased, is going to be used, and much of it was “shelfware“, they were loathe to pay for “things that were not being used”.

So, they decided to move from a CapEx (Capital Expenditure) to an OpEx (Operating expenditure) mode. This transition moved the costs of software from the balance sheet to the income statement.

The second problem was the high cost. Perpetual pricing assumes a 4 year fee for the software would be paid “upfront” and so the cost of that software was pretty high. Which meant, most smaller and mid-sized customers were unable to afford it.

Finally, once the sale was done, there was no “skin in the game” for the software provider. The success or lack of the deployment or usage of the software was upto the customer. Obtaining value from the software was also something the customer was on the hook for, not the provider.

Why is there going to be a transition to pay for performance?

While the problems of lack of usage, high upfront cost, and the “skin in the game” can be solved by Software as a Service (SaaS) models, which ensures payment to the software partner once the software is being used and only for the amount it is being used, the problem of “obtaining value from the software” still exists.

The problems with SaaS pricing (usage) are 3 fold:

1. Inability to predict the “constant amount” each month since it is be based on usage, instead of a fixed amount each month.

2. The need to focus on “success” instead of “best effort” for customers. Instead of the provider saying “this is what we will provide” the provider and consumer jointly will have to agree on the “desired outcomes” and the share of value they will each obtain from the transaction.

3. The need for providers to capture more of the “value” associated with the pricing instead of the “cost plus profit” model.

Which is why the next transition will be towards subscription billing or variable pricing not on usage but on “outcomes“.

What are outcomes?

Here is an example that most folks can relate to:

Imagine if you had to go from location A to B for a meeting by 6 pm. You are late and leave at 530, and expect it to take you 45 minutes to get there, but you’d really like to get there by 6 pm. You are willing to “pay extra” to get there on time.

Instead of charging you for the distance, which is what the taxi charges you, the cab instead charges you more for the “desired outcome“, being there on time. That means, for someone who left at 5 pm the cost would be less than for you, even though both of you went the same distance.

Here is another example.

If the desired outcome from a startup joining an accelerator is to A) Get a follow on round of funding and B) get some early customers instead of paying (a percentage of your startup, not an actual amount) a fixed %, startups will transition to paying for those outcomes or not paying at all. Or associating a variable payment based on the level of achievement of that outcome.

I believe the biggest transition that pricing pages will have to reflect over the next decade will be the move from “usage based pricing” to “outcome based pricing”.

Time spent on pricing page is the #1 early indicator of your SaaS freemium conversion rate

When I looked at 89 companies to learn how to convert freemium customers to paid, I also reached out to 13 of them to understand what drives the conversion.

Any early indicator to better conversion from viewing the pricing page to signing up for a plan was time spent on the pricing page.

If customers spent very little time (less than any other page) on your pricing page, then they would either not sign up or sign up for the “free plan”.

If customers spent too much time (more than any other page) then they would not sign up at all.

If customers spent time in the “middle zone” of your other pages, they conversion rate to a paid plan was most likely.

This was even if you had a free option prominently featured on your pricing page.

So how do you figure that out. I am assuming most people start out using Google analytics.

Google analytics: Time spent on pages

Google analytics: Time spent on pages

On your Google analytics page you can navigate to All pages and look at the average time spent on page. (see below).

Navigating to Time spent on page in Google Analytics

Navigating to Time spent on page in Google Analytics

So why is this the case? There are 3 major reasons I learned:

1. More time spent usually meant more options and more confusion for customers. When customers were given 3 pricing options (one of them being free) the conversions were higher, than when there were 5 pricing options. Not surprisingly even when the “free plan” was displayed “under the fold”, the conversions were the same. See below for what “Below the Fold” means.

Free plan as an option

Free plan as an option

Free plan below the fold as an option

Free plan below the fold as an option

2. More time spent on the page also indicated customers were reviewing other competitive options on other tabs. While less time meant customers had already made up their mind, so they were more likely to just “sign up and try”, it also meant the customer liked the options enough to try.

3. If the pricing option was the place where customers spent the least amount of time, than other pages, that was an indication that the customers were not ready to sign up and were “window shopping” alone. Either they did not have the pain point that your product addressed, or they were not in as much pain to even try the solution.

There were 2 exceptions that I found consistently among all the marketers I spoke with.

Not surprisingly, if the “referral source” of the customer was a search marketing campaign, and the time spent was the least, then the conversion rates were much higher than the referral sources.

If the referral source, was social and the time spent was more than other pages, then the conversion rates were much higher as well.

You can find referral source on Google analytics and correlate that to the time spent on pages.

Referral Source Google Analytics

Referral Source Google Analytics

A framework for how to take advice – for #entrepreneurs

There is no shortage of advice or number of advisers and the time you are given advice as an entrepreneur.

It can be overwhelming for an entrepreneur, especially when they hear from conflicting advice from trusted sources.

The 3 most important factors that should go into the decision making process for taking advice is a) Who should you take advice from b) What advice should you take and c) When should you seek that advice.

There are 2 kinds of people you take advice from – those you consider as “experts” in the field and those who have “experience” with the specific problem you set are seeking the advice from. Everyone else is rather a big waste of time. So, if you are an entrepreneur and seek advice from someone at a much larger company on what you should do with your product direction, when they are not an expert in the field, then be prepared to be given useless advice. Well, you asked for it so there.

Expertise is easy to ascertain since, it has a factual basis. If someone is a certified legal professional, then they know the aspect of law they practice. They won’t necessarily be the best at litigation or immigration if they are a corporate attorney, but they would be the best at company legalese.

Experience is best couched with situational awareness. If the person giving the advice is smart, they will tell you the specific conditions, background and environment that the course of action worked. From that, you can at least determine if it might work for you in your specific situation.

The worst people to take advice from are those that pattern match. In my experience, most investors, general practitioners and enthusiasts understand a situation by talking to many people and offering their generic opinion couched as “experience”.

If you seek advice from those whose experiences don’t match your current situation, then you will get suboptimal advice. People who are confident may tell you they don’t know, but it is more likely you will get opinions from 3rd party reading couched as experience.

You need actually both expertise and experiential advice for most situations, which is why understanding the contours of the problem will help you explain it to the person you are seeking advice from.

What you need advice on falls into 2 buckets as well. Easy questions and hard questions. Easy questions have a binary outcome. These are fairly rare. Most difficult questions tend to have a range of answers, with complicated if-then-else statements around the answer.

Easy questions are those that can be answered by experts alone. Can you hire someone from your ex-employer is fairly easy to answer if you look at your exit interview or contract and have a legal person review it.

Hard questions typically will give you multiple choices, not just two. Should I raise money is an easy question to answer if you are running out of cash, but the harder question of who to raise money from and how much to raise are harder questions that can run the gamut based on your situation.

Finally, when you seek advice is also fairly binary. You can either seek advice when you need it, or way before you encounter your specific situation. Seeking it after is just a waste of time – it reaffirms your position and makes your feel nice, or it will make you regret the decision since the advice you get is contrary to the decision you already took.

If you seek advice just when you need it, prepare to be rushed and expect to miss out on key details that tend to be nuances and shades of grey. For example, trying to decide what type of company (C corp or S corp) you should incorporate is best done when you don’t need it done yesterday. It will give you time to think about the options if you learn about the options way before you need them and keep the notes handy.

Seeking advice way before you need it is useful in situations when the impact is longer term. When the decision to be made cannot be reversed very easily (for example who you want as a cofounder), you are better off getting advice on the type of cofounder you need.

The biggest challenge is always the conflicting nature of the advice. What do you do when two people, both of who you trust, offer very different advice or in fact the exact opposite advice.

The relative scale of their expertise and experience does not count, so most people go with what they feel “more comfortable” with. Or they get more opinions and do a “vote count”. Either way it tends to be sub-optimal only in hindsight.

Top 5 tips on how to come up with milestones that are measurable for your startup

Most founders will come up with following variations of milestones when they get started with their company.

1. Ship beta version of the product by Dec

2. Raise $XXXK in funding

3. Get to $YY in revenue.

Unless there is a team that’s large enough to have each person take on ownership for each of the milestones, the founders are the ones that are responsible for them.

This means that there is little else you can do other than focus on these milestones.

Lets assume you have a cofounder and you split the roles into technical and business.

The technical person takes responsibility for the beta version and the business person for the funding and revenues.

Now a few months in, a new set of responsibilities come forward including managing your board, your mentors, talking to potential partners and others.

Your team has not expanded to take on the executive level challenges, so you still have the 2 cofounders taking on more.

Some of these new tasks are enjoyable – having conversations with partners or mentors for example, so you get “distracted” and the top 3 goals no longer get enough time. That’s when you realize you need a to-dont list.

A few weeks go by and you hopefully realize you are behind and try to catch up, this time removing the new tasks on your list and replacing them with items on the top 3 milestones.

The problem is getting to the new items is tough until you have enough folks on the team who can take on the high level, cross functional priorities.

Here are the top 5 tips I have learned to come up with milestones that you can manage. You may have heard about SMART goals, so I am going to skip that portion and assume you already do that.

1.One person per milestone. You cannot have joint owners for a milestone. Even if you and your co founder are “two peas in a pod” and “complete each others sentences”, have only one person assigned to each milestone. You will achieve greater accountability that way.

2. One milestone per person. If you have more than one milestone assigned to a person, reduce the number of milestones. Obviously if you are a solo founder, that means work on one thing at a time until you have a management team to help you take tasks off the plate.

3.  Milestones cannot be overloaded. Milestones need to be specific enough for one area of work. If your milestone reads “raise a seed round and ship version 1 of the product”, that’s 2 different milestones with responsibilities for 2 different people.

4. Milestones need to have a specific date, and be reviewed weekly. To track your progress, I have found that a weekly review works better than daily or monthly. During the weekly review, you need to understand the tasks and projects that make up the milestone and understand where the blockers are with an “plan B” for any blocker.

5. The owner of the milestone needs to have cross-functional authority. You may have silo functional ownership of roles but most milestones, if they are important have cross- functional impact. So if you need to ship a beta version of the product, the owner of the milestone may need to get customer access from another person and market data from a 3rd person. Even if they are peer’s for the success of the milestone, the owner needs to have full authority to help get the resources to get the milestone done on time. This ensures that even if you have to transition from a role of control to a role of influence, you still have the ability to execute on the milestone.