First remember: the
“business model” is the real product of a startup.
As
entrepreneurs, we’ve got the solution covered but need help with the rest of
the business model to avoid chasing after solutions no one cares about which is
a form of waste.
You build
your Business Model through a series of conversations with other people that
complement your own worldview – advisors, customers, partners, investors, even
competitors.
“Customers
don’t care about your solution.
They care about their problems.”
- Dave McClure
, 500
Startups
Customer
Development is one such conversation where customers complement your worldview
on Problem and Solution. Validating you have a problem worth solving
(Problem/Solution Fit) is one of the riskier parts of the model you need to
tackle early.
Right Action, Right Time
Too often
though, entrepreneurs engage in the wrong conversation at the wrong time which also leads to waste. Like talking to investors before customers, prematurely seeking
distribution partners, or paying too much attention to competitors.
Investors
don’t care about your solution or your customers.
They care about the scalability of your business model.
The order
of these conversations is largely driven by the stage of your startup. Before
Product/Market Fit, the focus should be centered around learning. During this stage,
I find it most productive to surround myself with customers and advisors.
After
Product/Market Fit, the focus then shifts to growth. That’s when you stand to
reap the biggest impact with investors and partners – especially if you’re converting them from existing customers and/or
advisors.
Customer Discovery can still lead to waste
I used to
advocate jumping right into customer interviews after “Step 1: Document your
Plan A” (generate your Business Model – Lean Canvas) but customers don’t always have all the answers or finding the answers can take too long. Remember,
they mostly care about their problems.
While I
agree that Customer Discovery should be among the first conversations to
initiate, prematurely jumping into customer interviews can still lead to waste
for the following reasons:
1. There are many possible Customer Segments to tackle
For a given
problem/solution, there may be a large number of possible customer segments,
each representing different business models with varying suitability given your
unique perspective and resources.
One of my
earlier products, BoxCloud, was built around solving the large file sharing
problem. This could easily have been targeted at graphic designers,
accountants, lawyers, doctors, architects, etc. Each of these could be a
startup of it’s own. One approach to vetting early models is taking a broad
sweep first but that still takes time to do and time is your most valuable
asset.
2. Waiting is the biggest source of waste
Apart from
the time it takes to conduct the actual interviews, a lot of time is spent
finding prospects and coordinating these interviews. The biggest contributor of
waste during this stage is simply waiting for scheduling responses.
Tip:
Consider outsourcing interview scheduling and batching them together.
3. Qualitative learning is not perfect
Ironically,
qualitative feedback is most effective when it’s overwhelmingly negative. A
strong negative signal indicates that your assumptions most likely won’t work
and lets you quickly abandon or refine it. If 5 out 5 customers tell you they
don’t have a problem, that’s pretty significant!
On the
other hand, a strong positive signal doesn’t necessarily mean it will scale or
that the customer isn’t lying. All it does is give you permission to move
forward until that can be verified later through quantitative data.
Most of the
learning during this stage, however, falls somewhere in the middle.
When
following a Customer Discovery process, it’s quite possible to interview 30-50
people, get a strong must-have problem signal, build a MVP, refine first user
experience, even get some happy paying customers, and still hit a wall because
you can’t effectively reach more customers after that.
While
Customer Discovery can help you build the right solution for a given customer
segment, you may not be addressing other risks in your model.
Business Model Discovery
A lot of
these problems can be alleviated by adding another step before Customer
Discovery. Rather than jumping into customer interviews, which can take about
4-10 weeks to complete, I now spend a little more time brainstorming and
prioritizing the best “possible models” with advisors first – a
process I’ll fittingly call “Business Model Discovery”.
I use the
term advisor rather loosely. An early advisor might be a prototypical
customer/entrepreneur, potential investor, other entrepreneur, even your spouse
or significant other. Even though these models are a collection of untested
assumptions, they should at least “work on paper” and be something you can
clearly articulate to someone (anyone) other than yourself.
Reasonably
smart people can rationalize anything but entrepreneurs are especially gifted
at this.
Unlike
Customer Discovery, where you systematically start testing parts of the
business model – notably Problems and Customer Segments, Business Model
Discovery is about tackling the entire business model. The goal of both is
learning and not pitching.
The first
objective is taking a reality check on your possible models. After I made a
declaration to follow a Lean Startup/Customer Development process with my last
product, CloudFire, I spent a day filling out the first three hypotheses
worksheets at end of Steve Blank’s book. I then sat down to review them with my
wife, Sasha, who was also going to be customer #1. I scheduled only an hour
because I had anticipated breezing through these worksheets. It took us 2 hours
just to get through the first worksheet.
What seemed
obvious to me represented “leaps of faith” that weren’t obvious to her. Worse,
I had nothing to back them up other than “I just know them to be true”. You
need someone on your side who isn’t afraid to call bullshit.
Beyond
these early “reality-check” advisors, also seek out advisors that bring
specific perspective through domain knowledge and/or experience. For instance,
before doing any customer interviews on my latest product initiative USERcycle
(“KISSmetrics meets MailChimp”), I met with Hiten Shah, Jason Cohen, Joshua
Baer, Manuel Rosso, and Eric Ries. Their collective feedback helped inform my
decision to pursue a very specific business model over others.
The Goal is Learning
Much like
customer interviews aren’t about asking customers what they want, these
interviews aren’t about asking advisors what to do.
The Advisor
Paradox: Hire advisors for good advice but don’t follow it, apply it.
- Venture Hacks
After
documenting your Plan A, Step 2 is identifying
the riskiest parts of the model. This is
what you need to learn at this stage. We are good at identifying technical risk
but need help doing the same with other components of the business model.
The key is
not taking this feedback as “judgement or validation” but as a way to identify and prioritize risk. Then move on to Step 3 and tackle that risk through experiments.
Success is
unlocked at the intersection of these conversations and it’s your job as the
entrepreneur to synthesize it into a coherent whole.
