How 2 Seed a Plant: Errors in the New Introduction Thesis (Discontinued 1/3)

 These posts are organized in a note format. The third post will be in a more “formatted” post. If you take interested in this trilogy, I urge you to skim this post—look at the questions and formulate your own.Con
Unrelated but very important! When there is so much information in the world/book etc., I think it makes a lot of sense to formulate a mental model—I will post something I wrote separately on that— and look for information that filters through that model.
BUT BE CAREFUL! People suffer from a confirmation bias—if you are actively looking for things to support your theory, that is just about the opposite of what I am advocating. Anyways, take this advice or leave it. 
I believe that before embarking into “Entrepreneurship”—methodical thinking and empirical analysis should be encouraged to guide intuition and better results.
The Path to Epiphany and The Startup Owner’s Manual should sort of be “lexicons” in any aspiring tech Entrepreneur’s library. It’s basic, maybe even intuitive, but important to consider. It’s basic history and logic—like teaching who America’s first presidents were and how successions in offices work.
I write most of my notes in “blog forms” on Evernote, but these notes were from the two texts above by Steve Blank and Bob Dorf .
I will dedicate two separate posts to Steve Blank and Bob Dorf, known for pioneering the Customer Development process and the Lean Startup Movement as a result of the
Internet Boom.
The third post will be most comprehensive, and perhaps contrarian, in mediating the differences behind the thought behind Blank and Dorf and Traditional forms of product introduction.
The Traditional Stages:
1.Concept/Seed Stage
  • What is the product or service concept?
  • What are the product features and benefits?
  • Can it be built?
  • Is further technical research needed?
  • Who will the customers be, and where will they be found?
  • Statistical and market research and a few customer interviews fuel the evolution and business plan.
    Discussions of competitive differences, distribution channels, and costs.
    • This includes the initial positioning chart, which explains the company’s fits to VCs.
    • This now includes market size, competitive and financial sections, and spreadsheets predicting revenue and expenses.
2.Product Development
  • Marketing refines the size of the market defined in the business plans and begins to target the first customers.
  • Marketing works with Product Management on a market requirements document (MRD) to specify the product’s final features and functions.
  • Engineering focuses on building the product—>
    • Product Development “Waterfall” Model
      • Requirements
      • Design
      • Implementation
      • Verification
      • Maintenance
3.Alpha/Beta Test
  • Enginering continues building along the classic waterfall development model.
  • By eta test, outsider users test product and ensure that it works as specified.
  • Marketing develops a complete marketing communications plan, with a corporate website, and provides Sales with a complement of support materials.
4.Product Launch
  • The company goes into spending mode.
  • Sales channel has quotes and sales goal—sales channel and support marketing burn a lot of cash.
Problems with the Traditional New Product Introduction Model:
  1. Assuming what the customer wants.
    • A startup has no customers and unless the founder is a true domain expert, guess the customer problem and business model. A faith-based initiative build on guesses. To succeed, founders need to turn hypotheses or guesses into facts as soon as possible.
  1. Assuming the features to build flaw.
    • Founders presume what the customers wants, and the features. It is unknown whether the features appeal to customers.
    • Without direct and continuous customer contact, it’s unknown whether the features appeal to customers.
    • This causes huge engineering waste.
  1. Focusing on Launch Date
    • Traditional engineering schedules have test cycles with alpha, beta, and release—but rarely allow time to improve the product.
    • Focusing only on launch results in a “fire, ready, aim” strategy that ignores the customer discovery process.
    • The companies does not understand who it’s selling to and why they’ll buy.
  1. Emphasis on Execution Instead of Hypotheses, Testing, Learning, and Iteration
    • Startup culture emphasize “get it done, and get it done fast.”
    • Engineering, sales and marketing, believe they are hired for what they know how to do,. Not what they can learn.
    • Startups need to operate in a “search” mode to test initial hypotheses. Relentless execution without knowing what to execute is a crime.
    • Traditional PERT charts do not work. This prevents the ability to learn from missteps distinguishes a successful startup.
  1. Traditional Business Plans Presume No Trial and No Errors
    • One great advantage of the traditional product development model is it provides boards and founders an unambiguous path with clearly defined milestones.
    • Financial Progress is traditionally tracked using metrics like income statement, balance sheet, and cash flow.
    • In a startup, these metrics don’t track progress against the startup’s only goal: to find a repeatable and scalable business model.
    • Startup needs to ask specific questions about results of tests and experiments.
  1. Confusing Traditional Job Titles with What a Startup Needs to Accomplish
    • Demands of customer discovery must e comfortable with change, chaos, and learning from failure.
    • Measuring progress against a product launch or revenue plan is simply false progress.
  1. Sales and Marketing Execute to a Plan
  2. Presumption of Success Leads to Premature Scaling
    • In large companies, the mistakes just have additional zeroes in them.
    • According to Steve Blank and Bob Dorf, no business plan survives first contact with customers.
  1. Management by Crisis Leads to a Death Spiral
    • Failure is an integral part of the search for a business model.
  • Customer-related activities of an early-stage company to outline the “search” for the business model and to “execute” the business model that’s been developed, tested, and proves.
    1. Customer Discovery: the founders’ vision and turns into a series of business model hypotheses. Then a plan is needed to test customer reactions to those hypotheses and turn them into facts.
    2. Customer Validation: this tests whether the resulting business model is repeatable and scalable.
    3. Customer Creation: the start of execution whether end-user demand is built and driven into the sales channel to scale the business.
    4. Company-Building: this transition the organization from a startup to a company focused on executing a validated model.
The Search for a business Model includes Steps, Iteration and Pivots
  • Traditional product introduction plan makes no provision for moving backwards; according to Blank and Dorf, addressing customers’ key needs happen in a smooth, linear fashion only in business school case studies.
  • Candidly assessing whether the company has reached “escape velocity” is important.
Steps:
  1. Customer Discovery: this translates a founder’s vision for the company into hypotheses about each component of the business model and creates a set of experiments to test each hypothesis.
    •  GET OUT OF THE BUILDING to engage and listen with customers.
    • The founders define the product vision and then use customer discovery to find customers and a market for that vision.
    • Customer discovery includes two outside-the-building phases:
    1. First tests customer perception of the problem and the customer’s need to solve it—Is it important enough that the right product will drive significant numbers of customers to buy or engage with the product?
    2. Second phases shows customers the product for the first time, using the MVP or minimum viable product, that solves the problems to persuade customers to buy.
    Pivots may happen in the customer discovery phase. For web/mobile appears, customer discovery begins when the first “low-fidelity” version of the website or app is up and running. Another key element of customer discovery is that the founder is free to ignore all of it—a founders’ vision of what can be is clearer than the vision of potential customers.
This requires the founder to be able to articulate the “why,” not just ignore it.
  1. Customer Validation: this 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. During validation, it is important for the company to tests its ability to scale (product, customer acquisition, pricing and channel activities) against a larger number of customers with another round of tests, more rigorous and quantitative.
    • In web/mobile apps, customer validation calls for the deployment of a “hi-fidelity” version of the MVP to test key features in front of customers. Thee is no surrogate for people paying for a product; a customer base of hundreds of thousands that’s growing exponentially usually implies that the company can find a set of advertisers willing to pay.
    Customer Discovery and Customer Validation refine and test a startup’s business model—this verifies the product’s core features, the market’s existence,  locates customers, tests the product’s perceived value and demand, identifies the economic buyer, establishes pricing and channel strategies, and checks out the proposed sales cycle and process.
    Startup founders need to get out of the building to test the business model hypotheses, and that costs very little in cash. When paired with agile engineering, Customer Development, reduces the amount of wasted code, features or hardware. Agile development builds the product in small increments, allowing the company to test and measure customers reactions to each new iteration of the product.
The closer a company is to a predictable, scalable business model, the highly its likely valuation.
  1. Customer Creation: this builds on the company’s initial sales success. Some startups enter existing markets well-defined by their competitors, others create new markets where no product or company exists, and others attempt a hybrid by re-segmenting an existing market as as low-cost entrant or by creating a niche.
    • Each market-type strategy demands different customer creation activities and costs.
  1. Company Building: This focuses on “execution” and away from the “search mode.
A Manifesto summarized:
overview-of-the-customer-discovery-process_1.jpg
The Customer Development Manifesto:
  1. There are no facts inside your building, so get outside. Facts live outside the b building, where future customers live and work.
  • Key customer feedback points are random, unpredictable and difficult.
  • Second or third hand feedback are too diluted.
  1. Pair Customer Development with Agile Development
  • Customer development is useless unless the product development organization can iterate product with speech and agility.
  • Do not be locked in an implementation cycle—deliver a product that continually takes customer input and delivers a product that iterates readily around an MVP or its minimum feature set.
  • Agile engineering/development refers to rapid deployment, iterative development and continuous discovery processes that hardware or software companies can use.
  1. Failure is an Integral Part of the Search
  • When something isn’t working, successful founders orient themselves to the new facts, decide what needs fixing, and act decisively.
  1. Make Continuous Iterations and Pivots
  • Pivots are driven by the learnings and insight from a continuous stream of “pass/fail” tests you run throughout discovery and validation.
  1. No Business Plan Survives First Contact with Customers So Use a Business Model Canvas
  • The difference between a static business plan and a dynamic model could well be the difference between flameout and success.
  • A business model describes the flow between key components of the company—
  1. Value proposition, which the company offers (product/service, benefits)
  2. Customer segments, such as users, and payers, or moms or teens
  3. Distribution channels to reach customers and offer them the value propositions
  4. Customer relationships to create demand
  5. Revenue Streams generated by the value propositions
  6. Resources needed to make the business model possible
  7. Activities necessary to implement the Business Model
  8. Partners who participate in the business and their motivation for doing so
  9. Cost Structure resulting from the business model
As the customer development process continues, posting the hypotheses about the component of the model and then revising the hypotheses.
6.Design Experiments and Test to Validate Your Hypotheses
Hypothesis—> Design Experiment —> Test —> Insight
7.Agree on Market Type. It Changes Everything.
  • Not all startups are alike.
  • These are product/market relationships:
    1. Bringing a new product into an existing market
    2. Bringing a new product into a new market
    3. Bringing new product into an existing market and trying to
    4. Re-segment that market as a low-cost entrant , or
    5. Re-segment that market as a niche entrant
    6. Cloning a business model that’s successful in another country
  • Market type influences everything a company does since it determines customer feedback and acquisition activities and spending. It changes customer needs, adoption rates, product features and position as well as its launch strategies, channels and activities. Different market types require dramatically different discovery, MVPs, and sales and marketing strategies.
  • Existing markets, marketing is relatively easy, Users can describe the market and the attributes that matter most. New product or service typically runs faster, cheaper or otherwise improves on a customer-defined attribute.
  • New Market, a company lets customers do something they couldn’t do before creating something that never existed before. This makes getting feedback and creating demand particularly challenging, since the product is unknown to users and the market is undefined and unknown and costly to develop. The key isn’t competing, but instead understanding whether a large customer base exists and whether customers can be persuaded to buy.
  • Re-segmentitng an existing market, this is useful when the incumbent is too difficult to attack head-on. This requires identifying a market opportunity that incumbents are missing, which usually takes one of two forms: a low-cost strategy or a niche strategy. Unlike differentiation, segmentation forges a distinct spot in customers’ minds that is unique, valuable, and in demand.
    • There is low-cost re-segmentation- which is finding customers that will buy “good enough” performance at substantially lower price.
    • There is niche re-segmentation that looks at an existing market and asks whether a new product needs to address more specific needs.
  • Cloning an existing business model.
8.Startup Metrics Differ from Those in Existing Companies
  • The few financial metrics to track: cash-burn rate and number of month’s worth of cash left.
  • P&L balance sheets, cash-flow forecasts and lien of business analyses.
Have the customer problem and product features been validated?
Does the minimum feature set resonate with customers?
Who in fact is the customer, and have initial customer-related hypotheses on the likes of value proposition, customer segments, and channels been validated through face-to-face customer interaction?
Customer-validation questions might include: average order size, customer lifetime value, average time to first order, rate of sales pipeline growths improvement in close rate, adn revenue per salesperson.
9.Fast Decision Making, Cycle Time, Speed and Tempo
  • Adopt plans with acceptable degree of risk and doing so quickly.
  • Startup decisions have two starts: reversible and irreversible.
  • Agile startups master tempo.
10.It’s all about Passion
11.Startup Job Titles Are Very Different from a Large Company’s
Startups demand execs who are comfortable with uncertainty, chaos and change.
Open to learning and discovery—highly curious, inquisitive, and creative
Eager to search for a repeatable and scalable business model
Agile enough to deal with daily change and operating “without a map”
Readily able to ware multiple hats, often on the same day
Comfortable celebrating failure when it leads to learning and iteration
The ability to listen to customer objections and understanding whether they are issuers about the product, the presentation, the pricing or something else—maybe the wrong type of customer.
Experience in talking to and moving between customers ands engineers.
Confidence amid a state of constant change, often operation “without a map”
The ability to walk in their customers’ shoes, understanding how they work and the problems they face.
12.Preserve all cash until needed. Then spend.
  • Do not search for the one-off revenue hits but rather for a pattern.
13.Communicate and Share Learning
14.Customer Development success begins with buy-in, process is different to its core.

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s