A startup is a temporary organisation in search of a scalable, repeatable, profitable business model. Its only goal: find a repeatable and scalable business model. This is customer/market risk, not invention risk (where tech may not ever work).
Throw out traditional product management, instead combine agile engineering and customers development to iteratively build, test and search for a business model, turning unknowns into knowns.
Startup is a series of untested hypotheses.
Customer Development process gathers info from customers about product, channel, price and positioning, all of which are modified and tested in real-tome, and uses it as immediate feedback to iterate and optimise. Its a process to organise the search for the business model.
Get out of the building: acquire deep understanding of customer needs and combine knowledge with incremental and iterative product development.
Strategy is to search for business model: validate its business model hypotheses (and iterate and pivot until it does). Then, it moves into execution mode, that when require an operating plan, financial forecasts etc.
Organisation of a startup is around Customer Development team led by the founders (due to search for sustainable business model). In contrast to later company which organised by function.
Step 1: Customer Discovery: done by the founder [Search]
Translates a founders vision into hypothesis about each component of the business model and creates a set of experiments to test each hypothesis. Develops a plan to test hypotheses and turn into facts.
Key is to get out of the building and talk to customers.
Phase 1 of customer discovery: tests customer perception of the problem and customers needs to solve it.
Phase 2 of customer discovery: shows customer MVP that solves problem or fills need.
Pivots may happen: a pivot is a majot change to one of the nine business model hypotheses based on learning from customer feedback.
Step 2: Customer Validation [Search]
Tests whether the resulting business model is repeatable and scalable, if not return to Customer Discovery.
Proves that the business tested and iterated in customer discovery has a repeatable, scalable business model that can deliver the volume of customers required to build a profitable company.
Tests ability to scale: product, customer acquisition, pricing of channel activities against larger number of customers with tests, more rigorous and quantitative. Also develops a ssales roadmap for sales and marketing team.
Learning that a hypothesis is worng is not a crisis.
Step 3: Customer Creation [Execution]
Builds end-user demand and drives it into the sales channel to scale the business.
Builds on initial sales success. Company spends large sums to scale by creating end-user demand and driving it into sales channel
Step 4: Company Building [Execution]
Transitions organisation from startup to company focusing or executing a validated model.
Refocuses the team's energy away from "search" mode and to focus on execution, swaping informal learning and discovery Customer Development teams for formal, structured departments (sales, marketing, BD with executives).
Potential solution is to place seasoned CEO and move to board.
How Big is the Opportunity
- identify a customer and market need
- size the market, how much can we eat?
- growth potential/growth rate
- market structure, mature or in flux?
Total Available Market (TAM)
- how big is the pie?
- how many people/companies would wnat/need the product?
- how large is the market in dollars or units if they all buy?
- how do I find out?
- industry analysts in your domain
- wall street analysts
Served Available Market (SAM)
- how big is my pie?
- how many people/companies need/can use the product?
- how many people/companies have money to buy?
- understand for $ or units
- how much money if they all bought?
- who am I going to sell to in year 1, 2 and 3?
- how many customers is that?
- how large if they all bought?
Is this business model canvas worth executing for the next three or five years?
Introduction to Customer Discovery
"No startup business plan survives first contact with customers."
4 key questions:
- have we identified a problem a customer wants to see solved?
- does our product solve this customer problem or need?
- if so, do we have a viable and profitable business model?
- have we learned enough to go out and sell?
Answering these questions is the purpose of the first step in the customer discovery. Turning founders' initial hypotheses about their market and customers into facts.
Facts only exist outside of the building: so get out of the building (physically/virtually) and get in front of customers, repeatedly, over weeks if not months.
Search for the problem/solution fit
1. have we found a problem lots of people want us to solve (or a need they want us to fill)?
2. does our solution (product, website/app) solve the problem in a compelling way?
- does value proposition match targeted customer segment
- problem/solution fit same as product/market fit
If multi-sided markets, product/solution fit only achieved when all value props and customer segments match
Develop for the few, not the many
First product not designed to satisfy mainstream customer in startup (cannot afford to build every feature). Instead, startups focus development and early selling on a very small group of early customers who have bought into startups vision. Visionary customers give company feedback to add features over time
Earlyvangelists: visionary customers who buy unfinished/untested products because they want to "first". Willing to take leap of faith, unlike "mainstream" customers. Willingness to pay critical part of Customer Discovery process, if not willing to pay not an earlyvangelist.
Earlyvangelist characterised by all following:
- Budget or can quickly acquire budget dollars to purchase
- Problem so painful cobbled together interim solution
- Actively searching for solution and a timetable for find it
- Understand they have a problem
- Have a problem or need
- feedback and initial sales
- tell others about the product and spread word vision is real
- be potential advisory board candidates
Build Minimum Viable Product (MVP) first
Develop core features of product (incrementally/iteratively with agile engineering) with vision and experience of founders.
Customer Discovery goal is to test understanding of problem and see if personal MVP will prompt him to use/buy product based on its most important features alone. Tailor initial product release to satisfy earlyvangelists - if no one things MVP is interesting or sufficient, iterate or pivot until adequate number say yes.
Introduction to Customer Validation
Customer validation attempts to "test sell" at every stage. It has a continuing series of quantitative pass/fail tests to determine whether there is strong enough product/market fir to justifying scaling sales and marketing spending.
Business Model Canvas to sales roadmap:
- who influences sale? Who recommends?
- who is decision-maker? who is the economic buyer?
- where is the budget for purchasing the type of product you're selling?
- how many sales calls are needed to make one sales?
- how long does an average sale take?
- what is the selling strategy? is this a solution sale?
Developing a sales roadmap is part of the search for a business model. Founders must lead the Customer Validation team
- make sales to earlyvangelists
- constrain spending in Customer Validation
- prioritise what needs to be validated
- most need to think about value prop, customer relationships, channel and revenue model. Multi-sided markets need to address both sides
- think about 5 or fewer things that will make or break
Customer Validation determines whether a product/market fit can be validated by orders or usage
- developing MVP + sales/marketing plans - then, tests MVP and rest of business model canvas including product features, pricing channel and positioning (founders out of the building) -> by asking for orders
Customer Validation is complete when can answer these three:
1. can the business scale? Will $1 spent on customer acquisition yield more?
2. is there a repeatable and scalable sales roadmap?
- does the company know the right prospect to call on, and what to say consistently deliver sales?
3. is the sales funnel predictable?
- do same sales programs/tactics consistently deliver adequate, profitable flow of customers?