During this phase, you and your company team members should be focused on verifying that your product or service concept does indeed have merit in the marketplace—and, further, that it can be developed and brought to market cost-effectively and with relative certainty.
Getting Market Input
At this point, you have your idea; you believe you’ve got a candidate for your Minimum Viable Category; and you are ready to get on the path to Initial Product Release.
The first order of business is to engage prospective customers/users to determine whether your instincts and hunches are right. In other words, you need to talk to some of the people to whom you will eventually be selling your product or service.
Steve Blank, successful technology entrepreneur and now iconic author and professor, emphatically encourages teams to “get outside the four walls”: engage with potential customers and get their feedback before spending time writing code or any other development program.
Frank Robinson, with SyncDev (who told me that Steve Blank credits him with coining the term “Minimum Viable Product”), says this is the moment to meet with people and “sell them” the product—even though it doesn’t yet exist. The idea is to pitch your product as though it were already available (so the feedback you receive is specific, rather than speculative), see what resonates and what does not, and develop demand for your product as “back-ordered inventory.”
As we’ve noted, market research shows that, in fact, most products fail (70 percent or more), eventually dying or becoming “zombies.”1
This research further determined that the primary causes of this 70 percent failure rate are:
weak market input
inconsistent methodology
poor product analytics
And CB Insights found that the No. 1 cause cited by entrepreneurs was . . . no market need.
FIGURE 142
In other words, you may think you have a vital and irresistible product. But the market may see it as ultimately unnecessary.
The CB Insights research further found that “Tackling problems that are interesting to solve rather than those that serve a market need was cited as the No. 1 reason for failure.” Indeed, this was noted by 42 percent of respondents.
An excerpt from an executive at Patient Communicator Inc. shared “I realized, essentially, that we had no customers because no one was really interested in the model we were pitching. Doctors want more patients, not an efficient office.”
Treehouse Logic Inc. expressed: “Startups fail when they are not solving a market problem. We were not solving a large enough problem that we could universally serve with a scalable solution. We had great technology, great data on shopping behavior, great reputation as a thought leader, great expertise, great advisers, etc., but what we didn’t have was technology or a business model that solved a pain point in a scalable way.”
With this type of insight, of course, your startup is a nonstarter. If you discover that there is no potential demand for your product, you need to stop now and rethink your business—to the point of asking if there is any point in going on. If you decide that there is—and you are not just living on your momentum—then you need to take stock of your assets. What have you learned from that rejection? Is there a different path you can take? Do you still have the time and capital to take that path?
These are very tough questions—and you must answer them honestly and not delude yourself. But you are not the first company to hit this wall, and, if you are resourceful and disciplined, you won’t be the first to come out the other side to even greater success.
Let’s assume you have already gone outside the proverbial four walls and have done your market research. You’ve made sure there is market need for your product. At that point, you will believe you have established product/market fit for your product offering.
Let’s say that you reached out to your friend working at Acme Corp. in the finance department and showed her some concepts for your finance application. You used slide mockups in your presentation and explained some cool new features you have in mind.
She gushed effusively about your great idea and encouraged you to continue. You asked her for intros to other people in finance groups at her company and she made them. You met with those people, and they too said nice things. You asked for feedback on certain key features you are contemplating. You asked them to rate and rank them. They did. You asked for more intros. They obliged.
Or, maybe, you invented a cool mobile app that (you hope) will eventually be distributed via the Apple Store or the Android App Store. You and your best friend coded up a prototype in a few months working in your college dorm. You shared what you’re doing with your friends, family, schoolmates. Wow, they all said. You’re stoked.
This took some time. But now you believe you are on to something.
After all, you spoke with a lot of people. You are confident that you have great market feedback and that if you build that business or consumer app with the features you’ve described, you are guaranteed to have a hit on your hands.
Really?
In the companies you spoke and met with, did you interview people with different titles—individual contributors, managers, and executives? Did you speak with potential users and economic buyers, recognizing that they are distinct constituencies? Did you speak with companies of all sizes in multiple different geographical locations?
If your product is a mobile app for consumers, did you speak with more than just your friends and family?
The problem with most startups and—with few exceptions—large incumbent companies, is that most do not conduct sufficiently statistically valid market research before moving into “build mode.” Rather, they limit their research, often unconsciously selecting for positive response rather than going out of their comfort zone and looking expressly for critical comments.
The truth is that the amount of time and expertise required to conduct valid market research is usually beyond the internal skill sets of most established companies, let alone startups. Most don’t have the capital, or don’t feel they can afford the time, to invest in hiring an outside market research firm with the requisite skills to perform it.
Even with established companies, the pressure to bring new or updated products to market quickly can be intense. And besides, they tell themselves, why do they need broad market research? After all, they already know what customers or consumers want because . . . they’re a market leader!
This attitude is a major factor for the enormous product failure rate. Think about what this means in terms of GDP!
So, you think your team is building the right product?
Patrick Campbell from ProfitWell produced a blog post about customer research. This research was sponsored by Adam Blake, CMO of ThriveHive. The survey included more than 3,000 companies using a subscription model and 1.2M subscription users.
The results from this survey were remarkable; I provide them here:
Subscription and SaaS executives love to tell me they don’t do customer research but by God, they love to A/B and multivariate test their way to success. Hill-climbing problems aside, in reality, we’re not doing tests either. Nearly half of us are not even conducting 1 test per month and this includes marketing tests.
We asked just over 2,500 product leaders to plot the last N features they built on a value matrix—which cross-references how much companies care about a particular feature compared to other features with how much they’re willing to pay for features. In turn, this shows us what types of features we’re putting out—be it core features, add-ons, or just plain trash.
This is what your product leaders indicated they’re building for the last five thousand features they built. A lot of differentiable and valuable features.
What We Think We’re Building
FIGURE 15
We then went out and asked 1.2 million different customers about their actual willingness to pay and thei
r actual preference for features using our statistical models, and this is what they indicated you’re actually building.
What We’re Actually Building
FIGURE 16
Executives indicated that 7 out of 10 of their organizations are speaking to less than 10 prospects or customers in a non-sales research capacity per month and note this doesn’t get better with a company’s size.3
And, I would argue, if they aren’t talking to their customers then they certainly aren’t talking to the market.
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DEVELOPING A MARKET-FIRST MINDSET
I am determined to persuade you to change your thinking—just slightly. I want you to realize that you really aren’t seeking product/market fit as much as you are looking for market/product fit. The difference may seem subtle, but it is, in fact, profound. Without a market, there is no need for your product.
You can only get market/product fit by adopting a market-first mindset and by using techniques that provide you with statistically valid market input. And it all has to be done quickly, because markets change rapidly.
In the digital economy, speed matters. Speed to market. Speed to decisions. Most people agree that digital transformation is what will enable companies to increase their velocity of new products and revenue.
“Forty percent of businesses in this room, unfortunately, will not exist in a meaningful way in 10 years. 70 percent of companies will attempt to go digital but only 30 percent of those will succeed. If I’m not making you sweat, I should be.”
JOHN CHAMBERS, CEO, JC2 Ventures; former Executive Chairman & CEO, Cisco
Make no mistake, whether you like it or not, digital transformation—essentially, “virtualizing” your company’s products and operations to climb aboard the rocket ship of Moore’s Law—is already under way for many companies. This transformation will affect every company—B2C, B2B, B2B2C—and organization, of any size, in any industry, globally.
AI and machine-learning software that can operate on the “digital exhaust” of consumer and business transactions and signals in real time will provide companies with the ability to “think” smarter, act faster.
According to McKinsey and technology titans such as Tom Siebel, formerly CEO of Siebel Systems and now CEO of C3, a leading AI/ML company, the companies that don’t get on the digital transformation train now are not likely to survive. More than 50 percent of the Fortune 500 companies that existed in 2000 are no longer around, gone due to acquisition or bankruptcy. And, the devastation isn’t over. The companies that replaced them? Alphabet, Amazon, Salesforce, etc. These are companies that used digital transformation as a competitive weapon and won market leadership and category positions.
Over the next few years, digital transformation will compel all companies to retool their infrastructure and processes to secure and increase the top and bottom line.
In the 21st century, the top and bottom line begins with the product line.
Product obsolescence will happen faster.
Competitive advantages will disappear rapidly.
Cash cows will be gored in months, not years.
Internal product innovation and delivery skills will be an imperative, not just “nice to have.”
Year after year, products will need to be designed and delivered faster than ever before. Mistakes will be more commonly fatal for companies of any size, not just startups.
In response, your product processes will need to adapt to become market-first and optimized to quickly provide you with the data you need to make accurate, fact-based—not opinion-based—product decisions.
If you are a startup leveraging digital transformation, this is great news; digital transformation is your tailwind. If you are an incumbent, this should serve as a warning.
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THE MARKET-FIRST PRODUCT PROCESS
“A great product manager has the brain of an engineer, the heart of a designer, and the speech of a diplomat.”
DEEP NISHAR, Senior Managing Partner, SoftBank Investment Advisers, former SVP, Products & User Experience at LinkedIn
I can’t give you the Next Big Idea, but I will endeavor to show you how you can develop and leverage a market-first mindset and then manifest that mindset through the application of appropriate processes.
Those of us who have been involved in the product process—engineering, product marketing, UX design, and product management—have all learned, sometimes too late, about Lean startup methodologies and product/market fit.
Today, in our ever-faster-moving economy, if you want your product to succeed, you need to start thinking about market/product fit from the moment you begin the Ideation process. You must learn to become a market-first company. And to do that, you need to begin with a commitment to capture statistically valid market data.
Without accurate market data—delivered quickly—you are likely to fail. It is that simple. Thus, it is incumbent on you to get that data any way you can, as fast as you can.
Market research shows that for every three products that succeed, another seven fall short. For every three flashes of brilliance and intuition, there are another seven wrong guesses. For every three startups that actually do know best how to serve the market, there are seven startups or venture capitalists who think they know best, and don’t.
The reality is that we live in a world that is overflowing with products and services. Today, more options than ever are flooding the market and all are competing for attention, excitement, and a finite pool of money.
There are some remarkable startups with amazing teams out there. But when the data shows that just 30 percent of products succeed (and that’s the best case), everyone benefits from an approach that captures more useful information, not less.
You need more than a product-first approach, more than a customer-first approach, more than customer obsession. You need an approach that looks at future customers, potential customers, would-be customers, and, if you’re an existing company with current customers, beyond them to engage the total market. You need to discover what drives your potential customers, what bugs them, and what motivates them to adopt new products and services. You need new kinds of data, and in this 21st century digital economy, you need all that data faster than ever before.
That is what I mean by market-first.
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MARKET-FIRST DEFINED
The market-first product process demands that companies collect and interpret market signals from customers and noncustomers to identify existing and potential problems to be solved.
A strong “market signal” is generated by the combination of what the market says (captured via surveys, focus groups, social media, etc.) and what the market does (what people and businesses actually do). Acting on weak market signals (e.g., a small survey or focus group) instead of strong market signals (e.g., a broad market survey + product download and usage data) can, and often does, cause product failure.
Where do all of these market signals come from? The extent of this list may surprise you:
Current customers
Prospective customers
Noncustomers
Nonprospective customers
Ecosystem
Competition
Influencers
Partners
Employees
Vendors
How can you collect these market signals? This, too, is a list so extensive that it may surprise you:
Discovery interviews
Large-scale surveys
Smoke tests
Usability testing
Usage monitoring
A/B testing
Engagement analysis
Customer support
NPS and customer experience data
Social media sentiment
Community feedback
Fortunately, there are now applications on the market that can help you collect market signals. But they work only if
you acquire them and use the data they generate.
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THE THREE PRINCIPLES OF MARKET-FIRST
To become a market-first startup, you must commit to adhering to three fundamental principles:
PRINCIPLE 1: Capture & Monitor Market Signals
A startup that embraces a market-first product process must incorporate a rigorous method for capturing and monitoring market signals—and doing so continuously over the life cycle of any product or service it brings to market.
PRINCIPLE 2: Continuously Measure & Test
A commitment to a market-first process requires your team to check its intuition with data. That means collecting and interpreting the market signals which, over time, include signals from your customers and, more importantly, noncustomers. It also means developing methods of measuring and testing your decision-making processes against facts, not opinions.
PRINCIPLE 3: Make Data-Driven Product Decisions
We are all inundated with calls for everyone and everything to be data-driven. So it is surprising how few startups—and their investors—have been willing to truly adopt a data-driven perspective before, during, and after product development. Instead, most simply pick selective data to support the same opinions they already hold. This becomes a self-fulfilling prophecy, producing the results you want rather than what you need. And those “wanted” results are the very ones that lead to large failure rates.
If you find yourself demanding that someone “show you the data” and yearning for real market signals before investing precious resources into a new product or feature, don’t give up. Beware of moving forward without that empirical evidence from the market.
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DEVELOPING MARKET IQ
Technical intelligence and market intelligence are not the same thing. Just because you are brilliant and capable of inventing new products or new features does not mean that you really have a data-driven understanding of the market for those products. Too often, just the opposite is true.
Traversing the Traction Gap Page 9
