You have this awesome idea about a product and decide to start a company. Where do you start? What are the first steps?
Frequently, startups will jump right into product building and hope that it will sell. We tend to bias our own experiences. If I am having this problem, then others surely are. As a hypothesis, that’s actually a great starting point. However, It’s not quite clear at this stage how this will translate into a company that makes revenue. There is a long bridge to cross and requires following a framework and some discipline.
At a high level, there are 4 keys steps that you should start with. They are roughly in sequence with some overlap. Following a framework like this will help decrease your risk and help build products that your customers not only want, but will use.
Validating problem
The first exercise for a startup is to understand the pain point from the point of view of your target customer. This is a foundational step for everything that follows. This approach is called the customer discovery process, made famous by Steve Blank.
During this phase, you are interviewing as many prospects as possible. The goal of this phase is to understand the pain points in detail. This is where you only ask questions and let the prospects do much of the talking.
Here is a set of questions as a starting point –
- What is the hardest part about your job?
- When was the last time? How often does this happen?
- Why was it hard?
- What have you done to solve the problem?
- What do you like or not like about the solutions you have tried?
- If you had a magic wand, what would you ask for?
The first exercise for a startup is to understand the pain point from the point of view of your target customer. This is a foundational step for everything that follows. This approach is called the customer discovery process, made famous by Steve Blank.
During this phase, you are interviewing as many prospects as possible. The goal of this phase is to understand the pain points in detail. This is where you only ask questions and let the prospects do much of the talking.
Here is a set of questions as a starting point –
- Is there a pain point?
- Is it big enough?
- Is it faced by a few or many?
- Is there an opportunity to solve the pain the point?
This step helps you ensure you build the right product for your customer.
Here is a template for documenting the meeting.
Validating product
After understanding the target customers pain point, you now validate your product. The best way to do that is to build an MVP or even better, do a manual experiment. An MVP is a vehicle that helps you showcase your product to a customer without actually building the full product, which can be risky. This concept was popularised by Eric Reis as part of the Lean Startup methodology.
MVPs by design need not function like a product. For example, if you are selling a dashboard product, then the MVP could be something you build by hand and demonstrate to your customers, say a PDF. Or maybe a highly scaled down version with no bells and whistles. In today’s no code world, this is fairly easy to set up. From a customer’s point of view, they get to see how the product would work and you will get to see if it will actually solve the core problem(s) that you validated in the first step.
When Zappos started, their MVP was to take pictures of shoes in a retail store and post them on their own site. When someone ordered, they would buy that shoe at the store and ship it. The core idea they were validating was the hypothesis that people will want to buy shoes online. It was not the web application or the inventory aspects. They are important, not just yet. If people don’t buy shoes online, then any investment on the web site or managing inventory is useless.
Someone once said, if your MVP is embarrassing you are on the right track. Don’t bother with the bells and whistles such as a fancy dashboard, integration or single sign on. Focus on the one functionality that solves the core problem and validate that.
One of the most important findings from your research will be, if your product is a pain killer or a vitamin. A pain killer product is hard for customers to pass up. A vitamin product on the other hand could be interesting but not worth their time and money. The goal is to ensure you are building a pain killer and that the pain killer works.
You want 50 customers to say this solution will absolutely solve my key pain point and I am willing to pay for it. You will now have a much better idea about what to build.
The key question you are trying to answer in this step are –
- Does the product solve a key point point?
- WIll it be easy to use and adopt?
- Is it a pain killer?
Validating sellability
You have figured out your product or solution. Now the rubber hits the road. Will they buy? There was once a startup who built a data solution for traders. They all gave a thumbs up to the idea during initial discovery. When the product was ready, they would not buy. Why? They already had a subscription to a more comprehensive product. There was no point to buy another product.
This step helps you understand what it will take for customers to buy. Validating your product is necessary but not sufficient. You also have to validate if they will buy. While it may seem nice to know that the customer likes your product, the end game is for them to buy. Ask them to buy your software. You already know the pain point and you have a validated product. So it should be a no brainer, right? Not so fast. When you ask them to buy, they now have to think in terms of risk. Is it safe for me to purchase this product? Will we have some disruption? How many people need to be trained? and so on.
One trick I learnt was to tell them your product is free. See the reaction. If they don’t implement even for free, then something needs to be figured out. Maybe the pain point does not exist for them. Go back to Step 1. Maybe the product does not quite solve it the way it should. Go back to Step 2. Or maybe the value of your product is simply not enough.
An important step is to figure out the the value proposition equation – cost vs value. Customers will only buy if value far exceeds the cost. At least by 3x.
In terms of value, you need to figure out the actual value the customer will receive from your product. This could be revenue increase, labor hours saved, conversion uplift etc. Value needs to be quantified and be believable. You should be able to get that from the early adopters while you were validating the product in the previous step. Fluffy value statements are hard to quantify and are hardly believable e.g. our product helps improve customer satisfaction. Instead frame the same thing in revenue or cost terms e.g. our product reduces churn by 2%.
The cost part is tricky to figure out. The easiest part is the cost of your product itself. However, you also need to understand the cost a customer undertakes to implement your product. Examples of cost incurred by customers include include training, change management, rollout, communication, migration, professional services etc.
Sometimes you may have a killer product and the customers understand the value, however they may think the hassle of disruption is too much and they would rather prefer to hold the decision to buy. Your product has to transcend that “hassle” cost.
Understanding all the costs of getting your product in is critical. Solutions that tend to rip and replace will obviously have higher costs for the customers e.g. replacing an ERP or CRM. Solutions that can be an add on to the customers existing platforms are easier to slide in e.g. a salesforce app or an Outlook plug in.
Once the value part is figured out, the next thing is to figure out what will it take for a customer to buy. You need to understand the buyer, the influencer, the disruptor, the champion. What are the steps from the initial demo to final approval? This will help you to understand the materials you may need. For example, if your buyers insist on your security process, then have a PDF ready or a web site ready. What kind of objections are you getting from the buyers? Answer them, then codify them in your process.
The key questions you are trying to answer are –
- Will customers buy? Or can they live with some pain?
- What are the hurdles in the purchase of your product?
- Who is the buyer? Influencer? Beneficiary?
Having paid customers at this stage is the best proof point and something your investors will value. Outreach founder Manny went door to door and sold to the first 100 customers personally.
By the way, you may find a certain set of customers who like your product but are not willing to buy yet. It may not have all the capabilities such as auditing, integration, single sign on and so on. That’s OK. These are not your early adopters. Your focus should be on finding the early adopters. They don’t mind the rough cut version of your product. In fact, this helps you identify your ideal customer profile (a separate topic that deserves it’s own blog post)
Validating repeatability
According to Steve Blank, the purpose of a startup is to create a repeatable and scalable sales model. This is a critical juncture where most startups will make or break.
By this time, you have figured out the pain point you are trying to solve and the type of customer you are solving for. After selling to customers in the sellability phase, you have also figured out the messaging of your value proposition. Now the time has come to repeat the process of selling to the next set of customers at scale.
The key question you are trying to answer –
- Can we communicate the value proposition so easily to our targeted customer that our product sells without too much friction?
This is also the point where you now start thinking about marketing, demand generation, sales, conversions and customer acquisition costs. Now you are ready to hire the first sales reps and a demand gen person. Not quite the VP sales or VP marketing. Those roles should wait until the repeatability part has been nailed. The VPs are for the growth phase.
Following the above steps helps you methodically build your startup. There is still no guarantee, but you can certainly improve your odds of success.
