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Generative Session - Design Thinking Book

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Steve Blank Customer Development Talk Startup2Startup

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Eric Ries of Lean Startup fame and the author of the Lessons Learned blog joined me at Startup2Startup for a joint Customer Development talk. Thanks to Dave McClure and Leonard Speiser for the opportunity to speak. The Customer Development talk can be seen here. 74HGZA3MZ6SV Part 1 Part 2 Part 3 The slides are here.

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If you're hoping to grow your own successful business, you'll find that data is one of your most important assets. You may have a great idea, but until you see how the world reacts, you really don't know what kinds of changes or adaptations might be needed.

The concept may be perfect, but the presentation may need to be tweaked. The idea may be a hit, but people might expect it to work differently to what you would expect. Learn how to avoid costly mistakes by watching this video.
Video Transcript:
Market Validation Essentials

I'm going to give you six market validation methods and then we'll take a short tea break.

Method One - Interview Your Customers

Technique number one is simply to interview your customers. I put up the book a moment ago called 'Running Lean'. We have a stack of ten copies of that book and I give it out to anyone thinking about doing this type of work. Some people I know they don't read it because I say "ok, we should do some customer interviews." They haven't read the book and I say, "let's do it, no problems."

I take their business, I substitute the words into the interview script out of that book, I sit on the phone with them and I say, "let's call the customer." I copy it word for word and I look like a genius consultant. But I'm just copying what's out of that book. You can do customer interviews really easily. Just make sure you focus on the problems first before you start to show off your solutions.

Method 2 - Wire Frames and Prototypes

The next one is wire frames and prototypes. This is showing people visual representations. This can either be on paper, this is what it is going to look like. For a lot of people you're selling to, actually putting things on paper is, funnily enough, quite non threatening, it is very easy. They don't feel like they have to gaze at a screen, paper can actually work really well.

Or you can build dummies, you can build pages. We've done this before, where this system would be a $200,000 system; but we build five web pages, click to click to click and just link to each other. It allows people to get a feel for what it is going to look like.

Method 3 - A Concierge Service

A concierge service is where you manually perform now what you know you can automate later. Let me give an example of that.

U.S. example

There is a service in the US where, I think the way it works is, you tell them the basic staples you have in your cupboard. You give them some indications of what you're interested in, they give you recipes and the remaining food items you need. You get a box and you get told what to cook each night. It takes the thinking process out of that. They get to know you and the suggestions get better and the food gets better.

The intention for this business is to be effectively a massive logistical business. It's to have warehouses that have food and do all the moving of food and have a lot of intelligence around the preparation of recipe recommendations. But they tested this by essentially having some pretty basic online forms where people answered their questions, or they would just talk to them over the phone.

The first run of it, they just went and bought all the food from the supermarket. They lost money. They bought cans of beans for $1.50 that they know down the track they can buy for $1. A lot of the intelligence, they just had chefs actually working on the examples. But what it allowed them to do for really a modest amount of money, was test the concept before they went ahead and did the bigger deal.

Local example

To give an example in our space, one of the speakers from this afternoon, Andy from his business Plexus, what we've built for them is a really sophisticated interface for people running trade promotions. So if you're going to run a competition, it just happens that that field is legally quite complex in terms of lots of legislation. The laws are quite complex state to state and the different types of competitions people run are quite complex.

What we did for them was build firstly all the interface, that we were hoping typically a marketing assistant in a marketing function would be able to use, to enter all the data and not to have to brief a lawyer. He would enter all the data, capture it and then produce a contract. But we were nervous what people without a legal background would actually give us and get through this process effectively.

So the first piece we did, we literally cut the project in half - it was like a duck on the water. All the data entry would go there, but it would just save into a database and in the background they would have people, like I just said, this will take 48 hours to create your document. In the background, they had people saying, oh there's another one. They were making these contracts. But what it did, it allowed them to prove the business model before we built the back-end creation piece, which was quite a complex piece to build. So concierge services can work really well to test your market.

Method 4 - Halving Your Market

Halving your market. We're working with a client at the moment who has a really interesting buyer/seller market place they're trying to set up. Oftentimes my observation in the buyer/seller marketplaces is that one side of that equation will be much harder than the other. In some markets it's really easy to get buyers, in some markets it's really easy to get sellers, but often the other one will be really hard. What we're doing in this particular case, we took a project that I think we originally quoted at something like $130,000.

I remember the scenario. I sat down with the person and said we want to test this thing. It's got a lot of planned intelligence around it. We stripped all of that out and the quote was still $80,000. It was still a lot of money. Then we said on a whim, "what about if we only did it for half the market?" What about if we just did a registration system that let people log in and fill in their profiles? Because one half of the market we don't know about and the other half are just rabid and want the service. So we know if we can test that one half of the market, we've probably validated 70% of what we're trying to do.

So we ended up doing a project, for I think it was around the $20,000 mark, that this client will be able to roll out to test that market. If it works, it gives a lot more confidence for what the rest of the project is. We'll probably learn some things along the way - we'll probably have some changes and some other bits and pieces. For buyer/seller markets, halving the market makes sense.

Method 5 - Minimum Viable Products

Minimum viable products. Who here before today has heard of a minimum viable product? I think it is a pretty common phrase in the industry. This is my experience of what minimum viable products look like to people. We have the conversation and it says: We should build a minimum viable product just to test your market. People agree to that concept.

What ends up happening though is, they get really worried about what their friends are going to think about the system. So 'minimum' in their world is actually the minimum that I'll be proud to tell my brother-in-law about at the Christmas party. Personal pride, I've seen it lots of time, they don't want to release something that they are going to be embarrassed about. That is not a minimum viable product.

A minimum viable product is the minimum you can do to deliver a unit of value and do some market validation methods. So often, if you think about your system, your systems will often have four, five or six key units of value. How could we pick one of those off and get that into the market and start to test that?

I can tell you first hand, when Content Samurai came out, there were bits of it that I thought were under-cooked. Eugene my partner, who is a lot wiser than I said, "But I want to get real market feedback." He said, "I'd like to get paid to build this product." No one tells you what they want more than real paying customers. So we released a really skinny version of that first up.

Method 6 - Test Marketing

Test marketing. There will be people in the room who will be uncomfortable with the suggestion I'm about to make. Before we released Content Samurai, we created the most amazing promotional video we could do. We got a video guy in-house and he did a number on it. He worked on it for a week and it was a ripper. It showed the product inside and out. It had the subscription plans. We did the works on it. We had testimonials saying how great it was.

We lead people though to a sales page. It was to the point that they put in credit card details. We didn't get them to put in their credit card details, we got them to the point where they would put in their credit card details. We know for certain from the number of people who get to that page, because we know our stats very well lined up, what sales we will make.

We have a large list of about 400,000 people. We made a random selection of 10,000 and we sent them an email as though the product existed. Yet we had not written a line of code of the product, it did not exist. We asked, we wanted to see how many people would buy it. Can I tell you, after you lose a large chunk of your life and a large chunk of money, it is really reassuring to build something knowing that people are going to buy it before you've actually built it.

For a lot of people being able to reach the market is a big issue in your business. You don't know if it is going to work, so test marketing.

The question is, is it ethical?

I wrestled with that issue, because effectively we were testing something that didn't exist. So we made sure we did really good things like giving them free versions of it. "Thank you, you got to this page. We haven't actually built it yet, but we are going to do so soon. You got here, so we're going to give you something free, to make up for it". We got no blow back. We had no issues with people saying you ripped me off.

From our perspective, and I understand this walks a fine ethical line, but, test marketing gave us a lot of confidence.

You can easily see the importance of getting as much information for your products, projects and business plans as possible. There's no need to overspend without having the crucial data about what people are looking for. You have to be able to identify people's needs and expectations in order to fulfill them successfully. Testing can be tricky, but if done the right way, you will have all the indicators for something that will make a successful product.

Are you looking to get your next great idea out in front of your audience? We'd love to help! Get in touch with us right away and start planning for success.

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6 Market Validation Methods You Should Know | Alliance Software

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If you're hoping to grow your own successful business, you'll find that data is one of your most important assets. You may have a great idea, but until you see how the world reacts, you really don't know what kinds of changes or adaptations might be needed.

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What is market validation? It's a question I hear a lot, especially when mentoring young entrepreneurs.

Market validation is the process of determining whether your product is of interest to a given target market. Market validation involves a series of customer interviews with people in your target market, and it almost always takes place before you've made a significant investment in your product/concept.

Last month, I gave a talk on lean market validation at the opening night of Startup Weekend at the University of California, Santa Barbara. In attendance were 200 eager students and entrepreneurs who wanted to learn how to build a startup in 54 hours. For many first-timers with great ideas, the process is exciting but also a bit intimidating.

The goal for my talk was simple: To layout a few practical tips for entrepreneurs to quickly validate their ideas. I also wanted to help them understand that even first-time entrepreneurs can launch successful products by taking a few easy (and often free) steps.

After using lean market validation to launch several software products, including ProductPlan, I've discovered that with the right process even inexperienced entrepreneurs can bring amazing products to market with excited buyers on the first day.

10 Ways to Rapidly Test Your Startup Idea

Here are my tips for using lean market validation to confirm whether you have a product/market fit with real customers. By simply engaging with real people and asking the right questions, you can confirm if your idea solves a problem, who your potential buyers are, and ultimately whether or not there's a market for your product.

1. Write Down Your Product Concept

Just the simple act of writing forces you to consider things you may have previously glossed over. I'm not talking about writing a "business plan." (For startups, a business plan isn't the best use of time and will change as soon as you start talking with prospective customers).

I'm talking about answering a few key questions that you can go out and test. These are your assumptions and the sooner you can test them, the less risk you will have when launching your product.

You can start with the questions below or use a tool such as the Business Model Canvas to guide your thinking.

Write down some basic assumptions that you can go out and test:

Who is your customer? If you say "everyone," you are already setting yourself up for a tough time. Be sure to get specific. For example, if your customer is businesses, answer: What kind of businesses? How big or small is the typical business? In a particular market? What is the title of the buyer?

What problems are you solving? So many entrepreneurs think about the product first - they fret about the features, launch the product, and then wonder why their product has trouble getting traction. My suggestion is to start with the problem first. What this means is being explicit about the problems your product solves. By writing down these problems, you can validate whether customers also see them as problems. And more importantly, whether customers think they are problems worth solving.

How does your product solve those problems? Only after writing down the problem do you move to the product. From here you tie the value of your product directly back to customer problems. How does solving their problems make their life better? Does it make them more money? Look better?

What are the key features of the product? The features need to be more than cool - they need to solve specific problems. The more quantitative (e.g. time saved, money made), the better. I encourage you to think Minimum Viable Product and limit the feature set as much as possible (you need to provide just enough value for some customers to buy).

2. Decide

At Startup Weekend, 54 hours go quickly. The same concept holds true for startups in the real-world. Time and resources are scarce. There isn't time to agonize over details that, in the end, may not matter.

For that reason, lean market validation helps successful teams get just enough information and data to make decisions. And then they make them. I like to adhere to the 80% rule - get just enough (valid) information from customer interviews and other sources of data and then make a decision. In the end, you will never get to 100% certainty, and getting close will eat up an inordinate amount of time.

3. Most of What You Write Down are Assumptions

Which brings me to my third point: All the writing you do, the discussions (and debating) you have, are assumptions. Teams often take these discussions (and what is in their heads) as fact, when they are simply assumptions that need to be tested.

I like to think of the scientific method when reviewing ideas - how can they be tested?

I often see teams (at Startup Weekend and at startups) debate minor details and waste valuable time rather than making a guess (a temporary decision), and then getting out into the real world to test whether it's the right idea. It's important to just make a guess and get started, because your assumptions may turn out to be wrong, and you'll have spent valuable time (not to mention the toll on team dynamics) debating something that didn't matter in the first place.

4. Find the Truth by Getting Out to Test Your Assumptions

As soon as you've made some basic decisions and written down your assumptions, get out to test them to see if they resonate with potential customers. I encouraged Startup Weekend attendees to get out on the street, but also to save valuable time by getting on the phone if the customer type warrants.

Lean market validation relies on customer interviews with potential buyers of your product. You can also test your assumptions by interviewing experts (for example, analysts for the industry, people who have been employed by the industry, consultants, etc.). There are also some great ways to test digital ideas with landing pages and inexpensive ads.

5. Start with Your Network

I'm often asked how teams can easily find prospects to speak with. I recommend working with your own network and the networks of friends, mentors, investors, and others to reach potential customers.

The downside of interviewing people in your network is they are friendly to your cause. This means that you are introducing some potential bias into your learning. But my attitude is that some bias is better than not interviewing at all and getting closer to the truth.

6. Interview Them

When I mention interviewing, I'm not talking about a cursory conversation (or worse, a survey). Start with a list of questions but deviate from the questions as you learn more information. Approach the conversation with a sense of curiosity about the customer's problem and needs, and you'll get some really valuable insight.

7. Ask "Why?"

"Why?" is by far the most important question you can ask. With it you can get closer to the truth from customers. Unfortunately, this question isn't used often enough - too many people ask a question, and then take the answer at face value. It's a missed opportunity to understand motivation and validate what someone would really do.

The Five Whys is a great technique for getting to the underlying reason - the real reason - behind a customer's motivation.

8. Find the Value Proposition

I encourage entrepreneurs to focus less on features and more on explaining the value proposition for their product. What does that mean? A value proposition is the expected gains that a customer would receive from using your product. Value can be quantitative, such as time saved or additional revenue earned. Measuring this is usually straightforward.

But value can also be qualitative, such as pain relieved or lifestyle benefits your product provides. By thoroughly understanding and documenting this qualitative value through customer interviews, you can set your product apart from the competition.

For example, it could be time saved, making more revenue, or maybe some social benefit (like looking good). Whatever it is, these value propositions are directly tied to the problems that you have previously discovered.

9. Liking Your Idea is Not the Same as Buying Your Product

Unfortunately, validating a product idea with prospective customers is subjective. There is no black and white answer. In fact, because people are generally nice and want to please you (especially the friendly university students at Startup Weekend), you need to be careful about accepting their answers at face value.

When someone tells you enthusiastically "it sounds great," or "that's an interesting idea," your first reaction should be to follow-up with "why?" It's important to understand that someone liking your idea is not the same as buying the product. Your challenge during your lean market validation process is eliminating as much of these "false positives" as much as possible.

10. Jump Off the Cliff and Have Fun

Startup Weekend is a great opportunity for new entrepreneurs to take a chance, pitch their idea in front of strangers, form teams, and make new friends. And many go on to build their startup idea and bring it to market.

My advice to the group (and to all entrepreneurs) is to take a risk, jump off the cliff, and have fun with the lean market validation experience.

Jim Semick shares more of his product leadership thoughts in Spotlights: Jim Semick "Your product is everything", below.

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Lean Market Validation: 10 Ways to Test Your Startup Idea

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What is market validation? It's a question I hear a lot, especially when mentoring young entrepreneurs. Market validation is the process of determining whether your product is of interest to a given target market. Market validation involves a series of customer interviews with people in your target market, and it almost always takes place before you've made a significant investment in your product/concept.

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A tight idea validation deadline is not meant to entice you to work harder and invest more to ... [+]
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On paper, the value of great and bad ideas is the same. Most of the time, they're worthless even if the great idea sounds so promising that it can potentially disrupt an industry. Without implementation, there's no such thing as idea valuation.

Many forever to-be entrepreneurs live in what I call an entrepreneurial fantasy. They're always coming up with new ideas, they study entrepreneurship, seek inspiration and follow trends but never execute. The arguments are, it's never a good time, I have other ideas, I'm not ready yet, I don't have the resources, etc.

The truth is, many aspiring entrepreneurs are truly interested in moving forward but just need a little confidence boost. It is normal to hesitate due to fear of failure and loss of limited resources. For this group of entrepreneurs and all founders, the best strategy for minimizing risk and quantitatively uncovering the true potential of your idea is by setting an idea validation deadline.

Building a startup takes time. Building and marketing a product can take months and a big budget. A tight validation deadline is not meant to entice you to work harder and invest more to accelerate stages. The idea is, if potential customers are not paying attention and taking small actions to the problem and your proposed solution even if it's not complete, chances are they won't care when it's ready for use. This accelerated validation period should not take longer than two months but can easily be completed within one month with a full commitment if you have the time.

Follow these 5 steps no matter your idea or target group whether it's businesses or consumers. The main objective is to quantitatively measure customer interest without building and hoping that they will come.
1. Study The Competition
The first validation comes from the competition. If people are already using similar solutions, you know there is a market for your idea. Furthermore, you don't necessarily need direct competitors to qualitatively validate your idea at this stage. Every solution on the market is created to solve challenges that have existed for centuries.

For example, Uber made finding rides more efficient, it did not invent rides on-demand. Before Uber, we called a cab or waited for one to pass by. Therefore, if you're introducing an innovative solution, learn how your future customers are solving the problem today. Are they spending money on a solution? If not, you'll have a hard time selling your product especially if you are first to market.
2. Run The Numbers
Once you have verified there is a market for your idea, it's time you conduct a quick feasibility study. In this period, which, in addition to the first step, should not take longer than one day, you want to answer the question, how much will I make from selling one unit of my solution?

The goal is to make sure the numbers add up. In other words, under normal conditions, you will be able to make money with your product. Estimate the costs and revenue from each transaction and make wise assumptions based on the competition to learn how much you need to charge to make money. You may quickly realize you need certain assets, volume and a long period to break-even which may not be feasible with your resources if you are bootstrapped.
3. Build A Lead Pool
The first two steps will provide you with the insights you need to learn which ideas are worth pursuing given the market, potential and resources. The third step involves future customers who will eventually be the deciding factor and answer your question about whether you should commit to the idea or focus on another one.

There are many channels for building a lead pool. The conversion rate for attracting your potential buyers to an interview is going to be significantly higher without a product. When they know they're not going to be sold to, they're more likely to give some of their time. The good news is, you don't need hundreds of people, you can start with as little as 10 to 15 interviews.

Look for users of competing products. Posting a question on relevant social media groups asking for those who use product X or Y will most likely quickly hit your interview target.
4. Build The Assets
This is where speed of execution comes into play. The interviews will provide you with insights about customer problems and needs. Turning those insights into a product will take time and money. Instead, focus on designing the key pages of the product and turning them into a clickable prototype that can be easily presented by you and envisioned by the customer.

Those key pages should include the core of the solution, that is, the key features, along with your value proposition. You don't have to be different by creating superior features, differentiation can be accomplished with segmentation. In other words, if your main competitive advantage is your customization of the solution to a specific group of people, make sure the designed pages reflect the positioning of the product.
5. Convert
This step is focused on measuring your prototype's conversion rate against your validation target numbers. Assume your goal is to pre-sell your product to at least two customers, which is a fair number with 20 sales meetings with the interviewees you met with in the third step. If no one converts, you have insufficient validation. If you reach your goal, move forward to product development.

There are many startup ideas that exceeded expectations in the early validation stages but failed later due to a poor product, execution, marketing, management or other reasons. The percentage of startup failure after early traction is significantly lower than it is for startups that get into development mode with no traction at all. Use those five steps to quickly validate your idea before you commit resources to it.

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Why It's Important To Give Your Idea A Validation Deadline

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A tight idea validation deadline is not meant to entice you to work harder and invest more to accelerate stages. The idea is, if potential customers are not taking small actions to the problem and your proposed solution even if it's not complete, chances are they won't care when it's ready for use.