Tag Archives: customer development

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.

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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.

Cold calling does not work during, customer development process, so what does work?

As many entrepreneurs start their customer development workshops at their accelerator programs, they quickly realize that “Cold calling” potential users to get feedback does not work, any more especially for B2B users. In 99% of the cases, most of our participants at the Microsoft Accelerator found out that they got voicemail, with no responses, over the last 4 cohorts.

Most accelerator programs tell you to call potential users, who are not your “friends and family” to prevent many cognitive biases. The first couple of weeks is spent by most entrepreneurs trying to identify potential users and spending time trying to get them to validate the problem. This is the most uncomfortable time for most entrepreneurs.

It is an absolutely important part of the development of your company, but the caveat is that many entrepreneurs find out that cold calling does not work any more. Most Americans are unlikely to pick up the phone from unrecognized numbers.

In fact, when you try to do it in B2B situations, and call the potential user’s work number, at their desk, it is worse. The number of times you go directly to voicemail is about 999 out of 1000. “Smile and Dial” is truly the most frustrating part of your customer development.

The situation is so bad that many entrepreneurs sometimes falsely believe after their customer development phase that no one truly has the problem.

Most people dont want to be interrupted, and dislike having a synchronous discussion with a stranger.

So, what are the alternatives to cold calling and what can you change.

First, you can change the “interruption” and align it with their routine, then you can remove the “synchronous” portion and make it “asynchronous” and third you can change the “stranger” to acquaintance.

1. To remove the interruption, the best is to put your feedback gathering into the flow of the problem. So, like native ads, you have to insert yourself into the normal course of the problem surfacing for your users. The best way to start this effort is to do a “Day in the life” scenario mapping of your potential user. I would typically do it in 30 min increments.

Find out when the problem surfaces and what the “Triggers” are for users. What I have found is that you can leverage moments of downtime to target your message and bring out the pain. For example if you are selling keyword optimization services to SEO marketers,  answer questions on Quora or LinkedIn Groups about these services so they are aware of the problem. Or ask a question on an active forum (something WhatsApp did) about the problem you are trying to tackle.

2. Email seems to work, to make the conversation asynchronous. If targeted, specific and brings value to your user before you make the request or have a call to action, it is powerful. Typically you’d want the email to be highly personalized (look at the users recent Twitter or social media feed) to start the conversation with highly relevant topical points, before asking for advice.

3. To remove the stranger problem, dig your well before you are thirsty. In fact, use social media (Twitter and LinkedIn groups work very well, as do Quora and SlideShare) to build “acquaintance” relationships well before you need them.

Finally, make it easy for people to give you feedback. Before they are willing to commit time to giving you feedback make them believe they will get value from your interaction as well.

I’d love to know what’s worked for you. Drop me a note on Twitter, if you have found a better way to engage users during customer development.

How “Clustering Illusion” stalls more #startups than any other bias

When you are doing your initial customer development, by talking to many potential users, there are many cognitive biases you need to be aware of.

Cognitive biases are tendencies to think in certain ways that can lead to systematic deviations from a standard of rationality or good judgment.

Usually most founders tend to solve problems they have exposure to or those they are aware of, or those they believe to be one that’s a large market. This stems from the “scratch your own itch” phenomenon.

I had a conversation with a founder who is building a consumer internet company, where viral effects of her product determine the growth trajectory more than any other metric. Or so, she had learned from many other founders experiences – both by talking to them and investors in the space.

After 3 months of building her mobile eCommerce product, she and her cofounder launched it in the marketplace. Initial traction was good and trending ahead of their expectations. Many of the early users were impressed with their product selection and merchandise.

Growth after the 4th month though, stalled as they were on the road trying to raise their initial funding. Most every entrepreneur knows that fund raising can be a full time job. In fact I have mentioned several times that fundraising is a poker game more than chess.

When they were trying to show their initial user growth, many investors had the same problem – was their product a trendy, 3-month-uptick or a sustainable-fast-growth business?

After hearing this from the 5th seed investor, they determined that they need to look closer at their numbers, their repeat purchase behavior and address the issue before they were going to raise any funding.

Looking at the initial numbers suggested their they had many buyers who got to know about them through word-of-mouth, and the repeat purchase was high.

She and her cofounder determined that they had to improve their virality coefficient.

This is the bias I see most often: clustering illusion.

The clustering illusion is the tendency to erroneously consider the inevitable “streaks” or “clusters” arising in small samples from random distributions to be statistically significant.

When you have very little data, you have very little data. That’s it.

Don’t make assumptions about the overall market based on very little data.

There are times when you have 60% of the data and you have to make a decision. There are times when you have 30% data and you have to make a decision.

The difference between 30% and 60% is a lot. In fact, most entrepreneurs I deal with confuse having 3% of data with 30% of data.

To reduce clustering illusion the only remedy is to get more data. You will have to run more, smaller, experiments, over smaller periods of time and do it consistently. Make your assumptions, document your hypothesis, but continue to work on getting more data.

Turns out the real problem for our entrepreneur was that the overall market was much smaller, and they found it after 1 year of trying to increase their virality coefficient. They did raise their initial funding, but have since pivoted to expand their merchandise offerings to cater to a larger market.

Counter Intuitive: To have a successful customer development process startups should qualify out prospects

There are many counter intuitive things that happen during a startup’s life. Many have been out there already – a) initially do things that dont scale b) focus on culture more than skills when recruiting, etc.

When I was in sales early on, I used to get this advice from my manager all the time – the objective initially was to qualify out customers.

That seemed rather bizarre. The whole objective of customer discovery is to find the right customers for your product. Or did we all get it wrong?

Turns out before customer discovery, there is actually a problem discovery step.

Before you find the customers for the problem you are trying to solve, you are trying to find out if the problem really exists.

There are many contours of the problem, and one of the best people I have seen articulate this is Manu Kumar of K9 ventures – he talks about Frequency, Density and Pain

To find a problem worth solving these 3 criteria are important.

So when you do find a problem, your next step is to find the contours of the problem along these dimensions. Are potential customers having this problem, how much of a pain it is and how often is this a problem?

Now the hard part of customer development and qualifying potential problems is that we all have cognitive biases which makes us want to fall in love with our idea. Instead, the best way is to try and find ways that you should not do this (idea) versus something else.

This is why I maintain a to-dont list. (pdf) Apply that to your problem discovery process.

The entire goal of customer development (after problem discovery) is to ensure that you only get those customers who have the 3 qualifying criteria of frequency, pain and density.

You will find initially that to make the problem “solvable”, you will need to focus on one feature or one part of the problem which is the “most painful”. Your potential customers are willing to sacrifice scale, failure, lack of bells and whistles, etc.  because it solves the one piece of the problem which is the most excruciating.

Deciding which is the most excruciating part of the problem is hard and tricky. You will get many head fakes from many of the people you talk to who could be potential customers.

If you are an introvert and don’t like talking to new people (which is most of us), then your initial customer development list is relegated to colleagues, friends, family and acquaintances.

Most of them don’t like to disappoint you, so even if your product is not solving the problem or not solving the real problem they will likely say things to ensure you are not discouraged. Which leads to you thinking that you are actually solving a real problem.

Which comes back to customer discovery and the goal of meeting every potential customer – it should be to qualify them out as a potential early user. The problem you are trying to solve may not be as relevant, as painful, as intense or as immediate as others.

You want to qualify them out. Early, often, quickly and constantly.

That’s very counter intuitive.

Surveys or open questions – What works better for initial product validation

Over the last few weeks, the new batch (fourth) of 16 companies at the Microsoft accelerator has been getting started with customer development. Some companies are fairly advanced, doing hundreds of thousands of dollars in revenue, but most are early stage. Last week our CEO-in-residence from the Israel accelerator, Hanan Lavy, came by to lead them through our customer development framework. The first thing I gathered from many entrepreneurs after that session, was that they were surprised at how it helped them revisit some of the assumptions they had made when they had the first idea about their product.

There’s an old saying that good sales folks are used to quoting “Always be Qualifying” (as opposed to the more popular ABC – Always be closing”, which never quite works, but is popular). The “lean startup” generation has its own version of that at the early stages of the startup – Always be validating – your assumptions, your plan, your pricing, your offering, etc.

Customer validations, early on, start by asking questions of customers, mostly in face-to-face meetings and then “graduate degenerate” to emails and phone conversations when entrepreneurs are unable to scale. I dont think there’s only one way to validate though – a good product manager uses all techniques to get in front of her customers / users as often as possible.

There are pros and cons to each of the techniques to validate your idea and assumptions, so rather than focus on all of them and their efficacy, I thought I’d take some time to share what I learned from 5 of the startup founders who have been trying 2 techniques over the last week with both Indian and US customers to validate their problem statements, ideas and positioning.

Think of this as A/B testing the format of communication as opposed to the medium or the message.

The medium most of them chose was email, given that they had to provide a quick turnaround back to Hanan (they were given 2 days to speak / connect with at least 10 customers. They could have chosen face-to-face meetings or focus groups using Webex / Skype, in app questions or real-time in-app chat, but they all chose to email their potential and few existing customers.

Now that most chose email, the next question I asked them was how many of the sent customers open-ended questions versus an objective survey with 3/4 choices for answers.

Turns out 2 of them used an online survey tool with 5 questions and 3/4 choices per question and 3 of them chose to send and email with 4-5 open-ended questions. Response rates varied from 40% to 60% I was told (fairly high given that their potential customers had only 24 hours to response). The survey’s got more responses than open questions.

What I did learn was that for companies that were earlier (had started building product, but did not have a prototype) the survey format worked better since they were able to get specific answers to questions and make decisions on 3 features they had to drop so they could ship quicker and gain more feedback quickly.

The open questions format worked for those that had worked longer with their customers and prospects since they got good qualitative feedback and a suggestion or two, which they had not considered before.

I have a personal bias against survey questions, since the choices are predetermined. Survey’s tend to be much better when you want a quick pulse to make feature decisions, not direction decisions. Surveys also work when you have a large pool of responses. Open questions on the other hand work just as well with 5 people as 50 – but at 50 people you have a hard time collating the responses. Open questions also requires you have a better relationship with the folks responding since their commitment of time is more.

What I also learned was that while there are pro’s and cons to both mechanisms, the decision you are trying should guide your choice of format, not the speed of the responses.

There are many types of decisions one takes at the early stages of the startup. Product direction decisions are rarely going to be resolved with surveys or email. Those are the type that many people leave to gut, data and lots of soul searching.

On the other hand, validating assumptions is always better with open questions is what I have learned.