The difficulty with customers is that they don’t really know what they want until they see it! This creates a nightmare for any startup or corporation trying to build a new product – What do you make that people really want and are willing to pay for?
To find the answer startups have to commit to an idea and move quickly, and cheaply through to a Minimal Viable Product . You are looking for a ‘must have” product. This requires continual iteration around customer needs. The ultimate test is getting customers to profitably pay for your solution i.e. a higher lifetime value of a customer to the cost of customer acquisition.
We’ve had three product ideas in our startup before we found the one we’re working on now. Creating a new startup product moves through three successive stages starting with ideas development and finishing in a successful product/market fit. Currently our startup is trying to get to product/market fit.
Last week I gave talks to MSc and MBA Entrepreneurship students on identifying entrepreneurial opportunities (above deck) based on these three stages:
- Ideas development – We spent a very long time researching and looking for the killer idea. We were trying to find the perfect opportunity – a gap in the market between existing suppliers in a new growth market. We went round and round in circles looking for the perfect opportunity. In the end we ditched our first real idea because the customer ROI was weak in the economic downturn. We then, much more rapidly, came up with lots of new ideas and committed to one – external website monitoring. Unfortunately research takes time and as a startup without revenues you don’t have time. You have to commit to an idea even if it’s not perfect - NOTE: there will always be competition!
- Product development & release – Without perfect knowledge on customer needs and competition you have to make many product assumptions. Right from the start we were testing our assumptions with potential customers at network events, in meetings, online and during our Alpha/Beta. It’s not easy to get real answers without a shiny product to sell. A prototype helps. You have to rely on your gut instinct. During this feedback we switched our app from internal systems monitoring to external web monitoring. We found potential customers more receptive to this offering. This early engagement process also helped us to develop our sales messages, sales funnel and go-to market strategies.
- Market/product fit - If you’ve made it this far the really hard work starts. You’re now looking to make your product a ‘must have’. The challenge is its very hard to be heard by potential customers. You’ need to get the product in their hands! Only then can they make a true judgment on its value. They’ll also compare your product to substitutes and alternatives in the market. You therefore need to differentiate and deliver a much better product to get them to change! The sales message and product needs constant refining until you have a measured product/market fit. Only the can you pull the sales trigger.
As startup founders we think we know what customers want and the problem they want solving the most. Unfortunately we’re probably wrong. We then waste huge amounts of time building a product around that perceived need. It’s hard for many founders to admit their ideas, product and dreams are incorrect. The ideas which formed the startup were based upon a assumptions.
You have to know when to quit an idea, re-form it or find a new idea as assumptions are tested. Flickr (started as on-line games), Youtube (Hot or Not) and Blogger (project management) are all great examples of product ideas which iterated to a different final product. As startups we don’t have the comfort of time and must move rapidly through an idea, production and iteration. Unfortunately non of this guarantees success but it sure helps!