This post shares an approach that applies lean principals to marketing in a way that can dramatically change the trajectory of a start-up from failure to success. The “traditional“ lean start-up approach espoused by Eric Ries and others is “Build => Measure=> Learn”. In other words, use the spaghetti approach: got an idea? Throw it against the wall and see if it sticks. Today, this approach is more feasible than ever before because it is cheap and fast to create software. While there is tremendous value in this approach, it has extremely high hidden costs: myopia and inertia.
Building something, however small, creates inertia. This inertia can set you on a deadly path. In physics we learn that a body in motion tends to stay in motion…in the same direction. Yes, it can be slightly nudged in one direction or the other. It takes considerably more force, however, to radically change its trajectory.
Think about the psychology of product development. Once you build something, you can’t help but improve upon it. Why not refine the user experience? Why not add one more feature? Before you know it, inertia sets in and you’re committed to a certain product direction…whether it represents a big opportunity or not.
How many start-ups pivot? Too many. Why? Because they go too far down the product development path before realizing that they’re not solving a real problem in the marketplace. Jumping too quickly into the “Build => Measure=> Learn” cycle can give you tunnel vision. And, as a result, you can fall victim to the tendency to perfect and optimize a (potentially) small opportunity.
The 5 Stages of Market Risk
Let’s step back and look at the core market risks associated with most high tech ventures. Two assumptions: First, I’m assuming that cash is not one of those risks and that the venture has adequate financial resources. Second, I’m assuming that the start-up has done its homework in assessing the competitive environment and has determined that there are unmet needs to be satisfied. Now onto those 5 key risks…
- Real Pain Felt by Large Market. The first risk is that the company is not addressing a real pain felt by a large community of prospective buyers. How many ventures have we seen that are “solutions in search of a problem”? Or how about those killer ideas that solve a serious problem for …only 100 people?
- Excruciating Pain Felt by Sub-Segment. The second risk is that the company will not be able to find adequate kindling to start its fire. In other words, can the company find a buyer segment that feels such acute and profound pain that they are willing to put up with a feature-poor product? Finding this segment is critical in helping the company gain traction in those fragile early days of development when there are not adequate resources to bring the perfect solution to market.
- Able to Build MVP. Assuming that the company can find the starter-segment in stage 2, the third risk is whether the company can build a minimum viable product (MVP) that will adequately address their needs. This is executional risk and its severity depends on the competency of the development team and the complexity of the solution. The Lean Start-up model typically begins here. The mantra “Build => Measure=> Learn” is a wonderful way to ensure that you build a customer-centric product.
- Repeatable Sales Process. The fourth risk is whether the company can create a repeatable sales process. Smart, passionate, charismatic founder/CEO’s can wow customers and shepherd the resources necessary to please any single customer. The question here, is can an ordinary sales rep without the deep industry expertise close the sale as well? Or has the founder/CEO been effectively customizing the solution for each customer (which is not a scalable process)?
- Positive ROMI. The last stage of market risk addresses whether the company can profitably acquire new customers. Anyone can spend $100 to acquire a customer worth $10. The question here is whether the company can find channels where the customer acquisition costs are dwarfed by the lifetime value of the customer. In other words can the company chart a path to a positive return on their marketing investment (ROMI)?
Beware of the Venture Capital Death Spiral
Skip these stages at your own peril. If you’re looking to raise venture capital, make sure that you have successfully passed through the first 3 stages. If you raise money prematurely or have an investor that doesn’t understand market risk, then watch out. As Josh Reeves, Gusto CEO puts it “There are no shortcuts. You can’t get somewhere faster by spending money. It’s like pouring water into a leaky bucket.
Raising money could be the kiss of a death – a slow, long, very expensive death. It is all too common for investors to get excited about a “hot” new company and use themselves as a proxy for the market. If the VC’s loves the solution, everyone else will as well. More often than not, VC’s will push companies to ramp up their sales and marketing (stages 4 & 5). If you haven’t eliminated the risk associated with stages 1, 2, and 3, then you’ll be building a skyscraper on a very, very shaky foundation. Silicon Valley is rife with stories of VC’s that have pushed their companies to grow fast, scaling sales and marketing teams before product-market fit was ever proven.
There’s A Better Way
In stark contrast to the Learn Start-up model that encourages entrepreneurs to begin at Stage 3, with a MVP, I’m advocating that you begin with the problem that you’re trying to solve. Before writing a single line of code, a start-up should validate its core value proposition with its target market.
Let’s start with good old fashioned marketing fundaments. Most have seen a traditional positioning statement. Oddly, its common for companies to craft this statement AFTER they’ve built their product. They kind of back into it. That is unfortunate. And Marketing is often tasked with trying to find the “there there”. Instead, why not BEGIN with positioning and have that define what you build, who you target and what you communicate? In a healthy, well-oiled company, positioning drives EVERYTHING. It is not an after thought driven by the PR agency so that they can write a press release boilerplate. It defines why the company exists and the problems that it is solving.
So what are the key elements of the positioning statement?
- Customer Segment
- Top need/pain
- Your product category or how the customer might refer to your category
- The key benefit(s)
- The unique selling point/secret sauce/the thing that makes you best, the thing that sets you apart from the competition
- Proof or evidence of why you’re the best
Driving to this clarity is not easy. Often it helps to have an objective outsider facilitate this process. Once you’re done and satisfied with your positioning, you have to test it. Never forget that each of these are just hypotheses. Now its time to get out of your office and get a healthy dose of reality…. Meet with prospective customers face-to-face. If they won’t meet, speak to them on the phone. If they won’t pickup, send them emails. If they don’t respond, try capturing them at their point of need (more on this later).
I strongly recommend beginning with the end in mind. Create your website and promote your product BEFORE you write one line of code (unless there is significant technical risk that you want to address in parallel). See if there is demand for it first.
Does this approach sound crazy? Check out sites like KickStarter and Indiegogo. They provide hundreds of examples of companies where marketing preceded product development.
Obviously these are for B2C, but the same approach can be used for B2B, using SEM, for instance. Open a Google Adwords account. Buy keywords associated with the pain points that you’re targeting. Write adcopy that based on your positioning statement. Point the click-throughs to your product website. Give people the opportunity to submit their email address if they’re interested. Then sit back and watch what happens.
If there is adequate demand, CONGRATULATIONS! Go build your MVP and rest assured that you’re addressing a very real and large opportunity. This knowledge alone will provide you with many degrees of freedom, allowing you to make plenty of mistakes along the way. Addressing a massive market with a real solution is often the most important success factor in high tech startup success. By contrast, perfect sales and marketing execution can never fix a product that nobody wants.
I’d welcome any and all feedback on this approach!
Please comment below.