In The Innovators Solution, Christensen and Raynor propose a method to define what organizations can and cannot accomplish – the RPV Framework. The RPV framework is composed of Resources, Processes, and Values.

Christensen and Raynor propose a decision-making model to help managers of New Growth Businesses assess the correct organizational structure and home for the New Growth Business.

In some cases, when launching a New Growth Businesses, managers should deploy what Business School Professors Kim Clark and Steven Wheelwright call a heavyweight team.

Heavyweight vs Lightweight Teams

When new processes need to be created, it requires a heavyweight team. The term refers to a group of people who are pulled out of their functional organizations and placed in a team structure that allows them to interact over different issues at a different pace and with different organization groups than they habitually could across boundaries of functional organizations. Conversely, lightweight teams are tools to exploit existing processes.

When to use a Heavyweight Team

When there is a well-defined interface between the activities of two different people or organizational groups – meaning that you can clearly specify what each is supposed to deliver, you can measure and verify what they deliver, and there are no unanticipated interdependencies between what one does and what the other must do in response – then those people and groups can interface at arm’s length and do not need to be on the same team.

When these conditions are not met, then all unpredictable interdependencies should be incorporated within the boundaries of a heavyweight team. The team’s external boundary can be drawn where there are modular interfaces.

To be successful, heavyweight teams should be co-located

Source: The Innovators Solution

Why Market?

Some Lean practitioners have abandoned planning altogether – citing, research and planning is a form of waste and doing is better than planning. In many cases doing is better than planning; however, in this case, planning is better than doing. Before you take the leap of launching a new business or product, your first step should be a simple market analysis.

In the startup world, there have been countless debates as to whether it is “team”, “product” or “market”. In one of the most-quoted blogs posts on the topic, Marc Andreessen says:

In a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn’t matter — you’re going to fail.

You’ll break your pick for years trying to find customers who don’t exist for your marvelous product, and your wonderful team will eventually get demoralized and quit, and your startup will die.

Andreessen goes on to quote Andy Rachleff’s Law of Startup Success:

The #1 company-killer is lack of market.

When a great team meets a lousy market, market wins.

When a lousy team meets a great market, market wins.

When a great team meets a great market, something special happens.

The point is this, the most important thing you can do is to pick a great market, so do some simple market research before you start working on your “great idea”.

Unfortunately, there is no single tried and true method for researching every market – markets are unique, replete with their own nuances and attributes. However, at a minimum, your market analysis should include a few simple attributes: market size and growth rate, competition, and market trends.

How to Evaluate the Market

Market Size

For those of you who are looking for more practical advice, there is a great post on Ultra Light Startups that outlines multiple methods of how to size a potential market.

In The Four Steps to the Epiphany, Steve Blank provides an easy-to-follow method of creating a top-down and bottom-up approach market size hypothesis.

Top-down

A top-down estimate starts with a total market size number then assumes your company can sell-to a percentage (usually) of that market. Here is an example from Deviantbits:

  • We want to sell internet access in China
  • There are 1.3 billion people
  • 1 percent want internet access
  • We’ll get 10 percent of that potential audience
  • Each account will yield $240 per year
  • 1.3 billion people × 1% addressable market × 10% success rate ×$240/customer = $312 million

Where can you find the information to compile a top-down estimate? You can find market statistics in: industry-analyst reports, market­
research reports, competitors’ press releases, university libraries, and government statistical reports.

Bottom-up

While top-down has its place, a bottom-up estimate is more appropriate for a small startup company/venture because it is based on sales/performance data specific to your situation – such as your marketing budget, how many customers you can serve, etc.

In other words, a bottom-up approach makes assumptions about what you can achieve using your specific sales/marketing tactics.

Again, another example from Deviantbits:

  • Each salesperson can make ten phone sales calls a day that get through to a prospect
  • There are 240 working days per year
  • Five percent of the sales calls will convert within six months
  • Each successful sale will bring $240 worth of business
  • We can bring on board five salespeople
  • Ten calls/day × 240 days/year × 5% success rate × $240/sale × 5 salespeople = $144,000 in sales in the first year

What if you don’t have a sales team? Google Adwords keyword tool is a great source of bottom-up forecasting. For example, you could estimate how many visits you can drive to your website x conversion rate x average order value.

The side benefit of the bottom-up approach – in good ole’ lean fashion – is that your assumptions are testable.

Growth Rate

Now that you’ve sized your market, you need to look at the market growth rate. Understanding the growth rate will help you understand the potential of the business as well as the lifecycle stage of the business – more on that to come.

Depending on the market you’ve selected, you can typically find a growth rate through research reports, blogs, press releases, etc. In other words, start with google.

In some cases you’ll find a growth rate percentage. In other cases you may need to calculate it based on size statistics. The following is a simple example of how to calculate growth rate:

  • In 2012, the market size was 200mm
  • In 2013, the market size was 240mm
  • The market growth rate is: [(240-200)/200] x 100 = 20%

How does this relate to the potential? You can use this to forecast the growth in revenue:

  • Year 1: you might expect sales at 200mm
  • Year 2: 240mm (200 x 1.20)
  • Year 3: 288mm (240 x 1.2)

Caveat: in Lean fashion, this is an assumption, not a “given”, this is a benchmark to help you understand the scale and scope of the business.

In addition to using the growth rate for forecasting, you can also use it as a health benchmark. For instance, if your sales growth is greater than or equal to market growth, your firm is comparatively healthy. If, however, your company’s growth in sales is less than market growth, it is very likely your firm is in competitive trouble, especially if this is not your strategy (Frost & Sullivan).

Lifecycle Stage

The market growth rate is a key indication of the product’s stage in the product life cycle. A high growth rate will usually indicate the market is in the growth phase, where growth is high and saturation is low. A lower, more-stable growth rate indicates product maturation and, of course, a negative market growth rate indicates the product decline stage (Frost & Sullivan).

As a startup company, your goal is to focus on introduction and early growth phase markets/products.

Phase Characteristics
Introduction
  • Growth: A low growth rate, small market size
  • Market potential: Uncertain
  • Competition: Few competitors/little competition
  • Barriers to entry: low
Growth
  • Growth: dramatic/increasing growth (size/no. of customers)
  • Market potential: Strong
  • Competition: Moderate, increasing competitors/competition
  • Barriers to entry: increasing
Maturity
  • Growth: Positive but decreasing growth rate (size/no. of customers)
  • Market potential: moderate
  • Competition: High, many competitors, consolidation starts occurring
  • Barriers to entry: high
Decline
  • Growth: Negative, declining growth rate
  • Market potential: low
  • Competition: Decreases, firms exit market
  • Barriers to entry: high

Tip: Ideally, focus on the first stages: introduction and growth.

Trends

Market trends is the first of the two more-subjective analysis criteria. In terms of trends, research the trends in the market – you will want to identify the top 2-3 trends that are likely to impact your market.

For the sake of simplicity, look at products and markets (see the Ansoff Matrix and focus on macro and micro trends.

  • Markets: (customers) what are the big trends that will affect your customers – changes in how people buy, economic trends, etc.
  • Products: what are the big trends that affect your products – competitors actions, changing technologies, etc.
  • Macro: broad changes – you can read these on blogs, in the mainstream news, etc.
  • Micro: talk to “real people” – what are customers saying, how do people interact with products, etc.

Competition

Finally, you will want to research the top competitors – which includes alternatives and substitutes – to your product or service. To illustrate the difference between competitor and substitute, consider the example of a Nikon digital camera:

  • Alternative: Canon digital camera, same product/category
  • Substitute: iPhone, same feature/benefits/different category

You should be familiar with:

  • Who is the competitor
  • What do they offer (features/benefits)
  • Their core value proposition – in other words, why do customers chose their product over the alternatives

The following is an example competitor analysis:

Nikon Digital Camera
Competitor Type Core offering Main Value Proposition
Nikon Quality compact digital camera at a competitive price. Lenses – faster, better for “action” shots
Canon Alternative Quality compact digital camera at a competitive price. Comparable features to Nikon. Lenses – better for capturing detail (people/scenery)
iPhone Substitute 8 megapixel camera, multi-functional device Multi-functional device, music, camera, phone, entertainment in a single device

This analysis will inform your competitive advantage and differentiation strategy.

Note: I have limited expertise in Canon vs Nikon, so this is more illustrative than accurate.

Conclusion

In conclusion, your final market analysis should posses the following details:

Quantitative

  • Size: target above 100mm size
  • Growth rate (Compare the market growth rate to the economic growth rate. If your category is growing faster than the overall economy, you’re on the right track. Identify where you’re at in the product life cycle )
  • What phase of lifecycle (should be first half)

Qualitative

  • Top 3-5 trends affecting your product/market – positive or negative
  • Competition: list your top competitors and/or main substitutes

Sources: Medium.com, Frost and Sullivan

Executives must answer three sets of questions to determine whether an idea has disruptive potential. The first set explores whether the idea can become a new-market disruption. For this to happen, answers to at least one and generally both of two questions must be positive:

  • Is there a large population of people who historically have not had the money, equipment, or skill to do this thing for themselves, and as a result have gone without it altogether or have needed to pay someone with more expertise to do it for them?
  • To use the product or service, do customers need to go to an inconvenient, centralized location?

If the technology can be developed so that a large population of less skilled or less affluent people can begin owning and using, in a more convenient context, something that historically was available only to more skilled or more affluent people in a centralized, inconvenient location, then there is potential for converting the idea into a new market disruption.

The second set of questions explores the potential for a low-end disruption. This is possible if the answer is yes to two questions:

  • Are there customers at the low end of the market who would be happy to purchase a product with less performance if they could get it at a lower price?
  • Can we create a business model that enables us to earn attractive profits at the discount prices required to win the business of these overserved customers at the low end?

Often, the innovations that enable low-end disruption are improvements that reduce overhead costs, enabling a company to earn attractive returns on lower gross margins, coupled with improvements in manufacturing or business processes that turn assets faster.

Once an innovation passes the new-market or low-end test, there is still a third critical question:

  • Is the innovation disruptive to all of the significant incumbent firms in the industry? If it appears to be sustaining to one or more significant players in the industry, then the odds will be stacked in that firm’s favour, and the entrant is unlikely to win.

If an idea fails what Christensen and Raynor refer to as these litmus tests, then it cannot be shaped into a disruption.

Source: Innovator’s Solution

Landing Page Test

Set up a landing page and get people to perform a specific action

Has three variables:

  • How good is your acquisition method (say, google Adword)
  • How good are your message positioning and design
  • How good is your value proposition?

Concierge Test

Testing by doing, substituting a human/manual process instead of automating (ie: creating a product)

Two things it can answer:

  • Is the problem solvable with a product?
  • Are customers willing to substitute human service with a product?

Wizard of OZ Test

Similar do concierge, build a front end of your system but no blackened. Humans do the back end manually.

Example: Zappos

  • The riskiest question was, “will people buy shoes online”. Rather than raising millions, building a infrastructure and buying inventory, the founder went to Foot Locker and took pictures of their inventory. He put photos of the shoes online. Every time someone placed an order, he went to Foot Locker purchased the shoes and mailed them to the buyer.

Read more examples

Smoke test

Done with marketing materials. Customers are given the opportunity to preorder a product that has not yet been built. A smoke test measures only one thing: whether customers are interested in trying a product.

Similar test is crowd funding test, test demand by getting crowd funding for pre orders.

The Lean Entrepreneur process was developed by Brant Cooper and Patrick Vlaskovits. The book is full of pratical advice that will help you get started launching your business/product. The process is generally:

JOB 1: Is there a solvable problem

  • Leave the comfort of your home and go find one person who is emotional about the pain or passion you are addressing.
  • If you are a B2C play, find nine more to complete your LE team of 10
  • If you are a B2B play, find 12 more to form your LE Advisory Board.
  • If you are a multi-sided market, serve both sides
  • Look for patterns in the people you compile

JOB 2: Is the solution Tenable?

  • Additionally, qualify your LE team of 10 or LE Advisory board.
  • Find 10 (3) people who are excited about your high-level solution idea.
  • If necessary, fill out your “team of 10” advisory board with new blood (starting from the beginning)
  • What is the pattern?

JOB 3: Solution Discussions

  • Engage your LE Team of 10 or LE Advisory board during product development
  • Are you on the right track?
  • Is the customer on the right platform?
  • Perform usability testing with competitive products
  • Conduct a “high hurdle” experiment
  • If responses are lukewarm or uninterested
    • Change the solution
    • Change the segment (start over)

JOB 4: Viability Testing

  • What is most uncertain about your business model? Run purpose-built tests to resolve uncertainty:
    • Landing page
    • Concierge
    • Wizard of Oz
    • Prototypes
    • Wireframes, Mockups, similar products
    • Test apps
  • If you lose members of the Team of 10 or Advisory board, refill

JOB 5: Minimum viable product

  • Validate customer will do in product what they’ve said they will do
  • Iterate
  • Develop discrete functionality that addresses the pain/passion
  • Iterate.
  • Validate through customer use
  • Iterate
  • Perform usability testing
  • Iterate
  • If you lose members of the Team of 10 or Advisory board, refill

JOB 6: Post-MVP

  • As you learn, split off execution
    • Learn “activated”: toward “satisfied”
    • Learn “satisfied”: build toward “passionate”
    • Build toward “whole product”
  • Developers should have the its not to develop
  • If Team of 10 or advisory board members are not passionate, refill
  • What is the pattern?
  • Turn your team of 10 (3) into a team of 20 (6)
  • Learn “passionate”: increase speed of customer acquisition
  • Create cross-functional teams charged with achieving specific objectives based on data that moves the needle of business

JOB 7: Funnel Vision

  • Use insights from your team of 20 (6)
    • Validate where customer segment “hangs out”
    • Validate that you can reach them
    • Validate what messaging and positioning resonates
    • Validate what makes customer trust you
    • Validate what convinces customer to buy
  • Resegment existing customers based on combination of:
    • Pain
    • Origin
    • Value
    • Funnel
    • Product usage patterns

JOB 8: Minimum Viable Business

  • Lifetime value > cost of acquisition
  • Velocity: average revenue per user versus cost of acquisition
  • Word of mouth: viral coefficient
  • Acquisition channel viability
  • Discover of “shadow force”

JOB 9: Long-Term Growth

  • Execution + continuous improvement + continuous learning
  • Continuous improvement of “shadow force”
  • Resell, cross-sell, up-sell
  • New products for existing customer segments
  • Existing products for new customer segments
  • Disruption: new products, new customer segments

There is no exact formula as to what every Venture Capitalist looks for, but this HBR article offers insight into what a few different VCs look for.  As you read through the article, you’ll see a few common themes emerge:

  1. Market
    • Market Growth
    • Market Size
    • Generally a target above $100mm, should be more like $1b
  2. Product
    • Problem being solved – pain
    • Solution
  3. Company
    • An ideal revenue goal / projection (corollary is the expected return)
    • Competitive Advantage or a Barrier to Entry
    • Team
  4. Signs of traction (ideally)

The most consistent theme is market – market size and market growth.

Russell Siegelman: Partner, Kleiner Perkins Caufield & Byers (KPCB)

How do you evaluate potential venture opportunities?

  1. The most important requirement is a large market opportunity in a fast-growing sector. We like a company to have a $100 million to $300 million revenue stream within five years. This means that the market potential has to be at least $500 million—or more, eventually—and the company needs to achieve at least a 25% market share.
  2. The second factor involves a competitive edge that is long lasting. It could be a network effect like eBay or an operating system lock-in like Microsoft, but those are few and far between. It is usually an engineering challenge that is tough enough to build an edge, resulting in several years lead or longer, if we’re lucky. We look for a tough problem that hasn’t been solved before. The solution can’t be so straightforward that someone can look at the blackboard and say, ‘I know how to do it.’
  3. “The third thing is team. There are lots of aspects to the team. We look for a strong technical founder—if it is a tough, technical problem—and a sales-oriented entrepreneur. The founder is the anchor, more than just an idea person, who understands the whole thrust behind the technology and the industry dynamic around it.

Other Tips

  1. I tend to invest behind an entrepreneur, not behind a professional manager as the CEO. Often, the person who can professionally manage as a CEO in the later stages of a company is not as effective in the earlier stages. It requires a different skill set. Entrepreneurs have to have a clear sense of the opportunity and how to build the business.
  2. The best ones are willing to reexamine their assumptions and are willing to veer left or right or pivot all the way around when the data suggests they’re headed in the wrong direction. They amble around until they find something good. The bad ones typically get overcommitted or wed to a particular idea.
  3. What is the process through which funding decisions are made? We have particular investment hypotheses we lay out in the investment proposal. We typically list three or four key risks we want to mitigate with the money going in. Sometimes, we stage the investment.

Sonja Hoel: Managing Director, Menlo Ventures

How do you evaluate potential opportunities?

  1. It is all about the market. It includes evaluating market growth, market size, competition, and customer adoption rates.
  2. We look for markets to be $500 million to $1 billion in size.
  3. We also look at the management team

Other Tips

  1. We track four things and relate them to the success of our investments: market size, the team, unique technology, and whether the product is developed at the time we invest. Market size and a developed product matter most.  We have much better luck if the product is in beta or shipping (traction).  Every August, we do an analysis about deals we turned down either because of market, management, technology, or the product wasn’t developed. We almost always get it right if we turned down a deal because there wasn’t a market. Where we don’t always get it right is valuation. If we turn it down because of valuation, we had a 10% error rate. Of all the decisions we made because of valuation, 90% were good but 10% were bad. With market as a reason, 99% were good and only 1% were bad decisions.
  2. If opportunity looks like it will return less than five times our investment, we won’t do it. Our returns have to be seven to 10 times because venture capital investments are high risk

Fred Wang: General Partner, Trinity Ventures

How do you evaluate potential opportunities

  1. Team
  2. Market opportunity
  3. Product/value proposition for the solution.
  4. Technology differentiation or business model differentiation is also important to sustain a competitive advantage.

Other Tips:

  1. Company Size: Our rule of thumb is we’d like the company to get to $100 million in revenue.  A 5 to 10 times return is a good type of return.
  2. Market size: We’ve funded some companies that have gone after a $500 million market. But it’s a sleepy enough market that we’re confident the company can take a big market share. If it’s a large entrenched market, we want to see a $1 billion to $2 billion market size so that we can see an opportunity to carve out a slice with a differentiated strategy.  There’s no easy answer because it gets driven a lot by what the competitive dynamic is. There isn’t a table that says if there are 10 competitors, the market size has got to be this much. We’re often funding companies in unproven markets, and we just don’t know how large the market will be.

Robert Simon: Director, Alta Partners

How do you evaluate potential opportunities

  1. “Under the heading of market, we have customer pain. How much pain does the customer feel, and how much will the customer pay to solve it?  We get to market size by estimating how many customers feel the pain.

Other Tips:

  1. On the market side, there are two ways to look at it. The replacement for an existing product is one market: the better, cheaper, faster model. The other is the brave-new-world model where we’re introducing a new piece of functionality and don’t really know where the markets are. Those tend to fall more on the consumer side.
  2. “Everyone wants the $1 billion market. If we’re honest, we don’t know what and where the $1 billion markets are until we get there. We have to see our way to a $200 million market with the right attributes and a lot of growth potential. We don’t target market share for our companies; we target revenue. We expect north of $60 million to $80 million in revenue in three to five years.

Three Steps to Validate any Market Opportunity

If You Build It Will They Come is, in some ways, a precursor to Lean Startup. In the book, Rob Adams lays-out a simple process for launching a new business/product. Adams simplifies the process with three easy-to-remember phases: ready, aim, fire.

The Ready Checklist

  1. Domain Knowledge: where did you get your idea?
    • Based on experience, stick with what you know.
  2. The Market: How big is it and how fast is it growing?
    • Figure out the overall market size and its growth rate for the geography you are targeting. Compare the market growth rate to the economic growth rate. If your category is growing faster than the overall economy, you’re on the right track. If your category is growing slower than the overall economy, you are at your first decision point.
  3. Lifecycles and Trends: how are these affecting your market?
    • Evaluate the lifecycle of the market. If you’re at the first half of the lifecycle distribution, you’re in good shape. If you’re on the declining back-half, that’s a tough decision point.
    • Know the macro trends affecting your market
  4. Your competitors: What are they doing?
    • Thoroughly evaluate your competition. This means direct competitors and substitutes for your product.
  5. The experts: what do they say?
    • Develop name-brand or other highly credible sources to make your business case for you.
    • Don’t forget, establish a relationship with a market analyst early on

The Aim Checklist

  1. Research: learning what you really need to know
    • The key part of market validation is objectively evaluating your market to understand market pain in detail
    • Your metric here is at least 100 of these direct interviews during your market validation efforts
  2. Interviews: Getting to the market pain
    • Your interview techniques should be focused on fact-finding
    • Starting interviews: assess the overall market requirements by understanding usage patterns in your potential target audience
    • Midpoint interviews: focus in on the proposed pain you are addressing and seek to understand how you can deliver an offering with differentiated characteristics to address this pain.
    • Finishing interviews: you are focusing on more successively on your final offering and potential markets
  3. Who are you after: Finding your target audience
    • To effectively know your market, you need to know all the available sources, the quality of the lists, and the numbers of names available in the markets you are targeting.
    • Track the productivity of these list sources while conducting Aim interviews so that you understand what type of lists and productivity you can expect when you eventually launch your product.
  4. Turning data into results: how to practically apply all that you’ve learned
    • Use statisticians and other professionals here, as extensive data analysis can frequently be performed on rudimentary results.
  5. Outside Help: Using research
    • Market research and strategy consulting firms have experience performing this kind of work and can be invaluable around questionnaire development, sourcing names, data analysis, and interpretation
  6. Countdown: preparing the market for your product
    • The knowledge you have developed thus far has provided you with real-time feedback to your sales and marketing efforts.

The Fire Checklist

  1. Sales and Marketing: Budget for it
    • In today’s brutally competitive and crowded markets, customers do not find your product; your job is to find them.
    • If you are working on a fixed budget, reallocate on this 50/50 basis (50% marketing / 50% product development) to assure all your market validation efforts receive proper follow-through
  2. The details: write product specs and schedules
    • Once you have accumulated all the information from your market validation efforts, you need to document how these translate into product features and in turn create a aschedule to develop those features into a finished offering
    • Within these skill sets, the sales and marketing team needs to develop a PRD, or product requirements document, clearly outlining how the Market Validation results are translated into features and functionality
    • Once the PRD is complete, the research and development team needs to break down each of the product features and functions into a development schedule with corresponding time frames.
  3. Fast to market: get a market-oriented product out quickly
    • It is critical to get the product out quickly
  4. Early customers: recruit design partners and advisory boards
    • Create a Design Partners Program – end-users of your product who you keep up to speed on the progress of your development
    • Create a Board of Advisors – put together for commercial offerings when there are many decision makers involved in the buying process
  5. Showtime: launch, market, and sell the product
    • Execute a well-funded launch, sales, and marketing campaign.

The “Running Lean” process, created by Ash Maurya, is a systematic process for quickly vetting product ideas and raising the odds of success. Ash outlines the process as follows:

Process Flow

running_lean_process

Step 1: Problem / Solution Fit

Summary

The first step is determining if this product is something worth doing. You do this by decoupling the problem from the solution and testing each through customer interviews.

Next, you will derive the minimum feature set to addresses the right set of problems – the Minimum Viable Product (MVP).

Goal

  • Do I have a problem worth solving?

How

  • Document your plan A – sketch lean canvas and prioritize where to start
  • Get ready to interview prospects – find prospects
  • Conduct problem interviews – formulate testable hypotheses, conduct problem interviews, do you understand the problem?
  • Conduct solution interviews – formulate testable hypotheses, conduct solution interviews, do you have a problem worth solving?

Problem / Solution Meta Pattern

  • Understand the Problem
    • Conduct problem interviews
    • Determine if you have a problem worth solving
    • Understand how customers solve this problem today
  • Validate Demo
    • Solution Interview: Test your possible solution qualitatively with customers using a demo that helps them visualize the solution
  • Validate Solution Qualitatively
    • MVP Interview: distill down your product to it’s essence (MVP) which you then build and test qualitatively with customers
  • Validate Solution Quantitatively
    • Verify results of qualitative interviews with actionable macro metrics

Exit Criteria

  • Is it something customers want? (must-have)
  • Can it be solved? (feasible)
  • Will they pay for it? If not, who will? (viable)

Step 2: Product / Launch Fit

Summary

You definitely understand your customers’ needs better than just a few weeks ago, don’t rush into building and launching your MVP just yet. It is fairly easy to get distracted during this stage and either build too much or build the wrong product. You not only need to distill down your MVP to it’s essence but also lay the groundwork to maximize your future iterations for speed, learning, and focus.

Goal

  • Are you ready to learn from customers?

How

  • Get to release 1.0 – scale down MVP, define activation flow, and implement continuous deployment
  • Get ready to sell – build a product website and make feedback easy
  • Get ready to measure – instrument a conversion dashboard
  • The MVP Interview – conduct interviews, are you ready to launch?

Exit Criteria

  • Be able to clearly articulate your UVP
  • Be primed to sign-up for your service
  • Accept your pricing model
  • Make it through your activation flow
  • Know what to do next

Step 3: Product / Market Fit

Summary

At this stage you have a plan that is starting to work – you are signing up customers, retaining them, and getting paid.

This is the stage when you truly start validating your complete product. While learning from customers is key, you have to know how to prioritize and then act on that learning.

The first step is defining a metric to measure Product/Market Fit. Once you have that, you can then systematically iterate towards achieving it

Goal

  • Have I built something people want?

How

  • Measure product / market fit – focus on the “right” macro and complete conversion dashboard
  • Constrain features – constrain feature pipeline and implement 80/20 rule
  • Prioritize feature backlog – vet feature requests and prioritize features
  • Experiment with pivots – run pivot experiments, do you have product / market fit?

Exit Criteria

  • Retain 40% of your users
  • Pass Sean Ellis Test – over 40% of your users say that they would be “very disappointed” without your product
  • Get paid

Sean Ellis Test

How would you feel if you could no longer use [product]?

  1. Very disappointed
  2. Somewhat disappointed
  3. Not disappointed (it isn’t really that useful)
  4. N/A – I no longer use [product]

Stage 4: How do I accelerate growth?

Goal

Your focus then shifts towards accelerating your plan for scale.

The customer development process was developed by Steve Blank. The basic premise is that a startup company is not a “mini version of a big company”, it is an organization in search of a repeatable and scalable business model.

In simple terms, the aim of the process is to help startup founders, or in the case of intraprenuership, product managers, find/validate a problem, validate a solution, validate a market (opportunity), and develop a business around it.

custdev

Step 1: CUSTOMER DISCOVERY

Goal

  • There are no facts in the building, get out of the building, stop selling, start listening.  Start doing customer interviews
  • Test your hypothesis. Two are fundamental: problem and product concept

Exit Criteria

  • What are your customers top problems
    • What will they pay to solve them
    • Does your product concept solve them?
    • Do customers agree?
  • Draw a day in the life of your customer
    • Before and after your product
    • Draw the org chart of users and buyers

Step 2: CUSTOMER VALIDATION

Goal:

  • Develop a repeatable sales process

Exit Criteria

  • Draw your business model, financial model make sense?
  • Do you understand the sales cycle & sales roadmap?
    • ASP, LTV, ROI, ETC
    • Org chart, influence map?
  • Proven customer acquisition model?
  • Orders validating the business model

Step 3: CUSTOMER CREATION

Goal

  • Grow customers from few to many
  • Four customer creation activities
    • Year 1 objectives
    • Positioning
    • Launch
    • Demand creation
    • Note: Creation is where you “cross the chasm”

Exit Criteria

  • Different for each
  • Which startup strategy are you executing?
  • Positioning tested & complete?
  • Launch strategy match startup type?
  • Demand creation activities match startup type?
  • Year 1 objectives match startup type?

Step 4: COMPANY BUILDING

Goal

  • Management changes as company changes, become development, process, and mission centric
  • Sales growth will match market type

Exit Criteria

  • Does sales growth plan match market type
  • Does spending plan match market type
  • Does the board agree
  • Is your team right for this stage of the company?
  • Have you built a mission oriented culture?