Knowledge Sharing:
1. In many ways, finding Product Market fit quickly allows you to focus on company growth rather than spending a lot of time and money on iterating your product to find that fit.
2. Yet we all know your product isn’t going to fit the entire market from day one! So while the MVP is critical, it’s missing its dance partner, what I call the Minimum Viable Segment (MVS).
3. At FREEjit we’ve mapped out a primary vision but we continue to explore other huge opportunities we could pursue once we have some traction to leverage. Each new fact adds credence to some potential pivots and reduces the viability of others. Eventually we’ll need to focus on one vision, but the right vision will crystallize over time. Even while we explore these opportunities, our current execution is very focused on the MVP needed to get traction. And the MVP maps well to each of the big opportunities we’re considering.
4. But surprisingly, app publishers were more interested in the structured insights we uncovered than the traffic we were sending.
5. By concierge MVP, I mean that we were manually categorizing write-in answers to how people used an app. Now that we’ve validated demand for this product we are working on a more automated way to provide it.
6. Successful entrepreneurs are constantly collecting data -- and constantly looking for bigger and better targets, adjusting course if necessary. And when they find their target, they're able to lock-onto it -- regardless of how crowded the space becomes. When Nat and Zach first came to us with the idea for Invite Media, it was focused on algorithms for ad targeting.
7. Algorithm.
8. When Nat and Zach first came to us with the idea for Invite Media, it was focused on algorithms for ad targeting. But once they got into the market the team saw a bigger opportunity -- the DSP space -- and they locked-onto that target with a successful outcome. We funded VideoEgg back in 2005 with the goal of creating tools to manage online video -- but Matt and team quickly adjusted course and have now become a leading media network for brand advertisers. When we first met Lance and Jia in 2006, they had a cool photo-hosting application called RockMySpace -- but they quickly found the opportunity was much larger than photo-hosting, and RockYou has since became a leading provider of social networking and gaming applications.
9. And while bigger markets might pose more challenges than smaller markets, the risks involved in targetting a $1B market are not 100x greater than those involved in $10M market. Choosing the right market is critical, because the market you choose determines the targets that are available for the heat-seeking missile to hit.
10. So today we tend to focus on a company's product vision, rather than on the specific implementation of a pre-launch product.
11. Do they have a data-driven philosophy or a gut-driven philosophy. Why did they make the choices they made?
12. At the end of the day, I've really come to believe that you can't predict success based on where a missile is pointed pre-launch. Instead you have to assess the quality of the targeting system (the team) and the density/size of targets (the market). And hope that the missile you launch finds a true target -- rather than a decoy...
14. This mirrors my experience at multiple successful startups. Most maintained a very low burn in the first year, investing funds carefully to create a valuable product. Only after early users validated that it was a must-have product, did we start loosening the purse strings. Speed of execution to fully capture the opportunity became the primary objective. At this point, most of the companies were able to successfully attract additional financing (often very large rounds).
15. Perhaps the most important realization that I’ve made as a result of this debate is that: Lean Startup principles are most critical in the early stages of a startup before product/market fit. If you have not created a “must-have product” your ability to attract future rounds of financing will be limited if not impossible. Your best chance of survival is to create a must-have product on your first round of financing – with the overwhelming majority of funding going into R&D. Once you have created a must-have product, it will be much easier to raise enough money to capture and lead the market.
16. Once you can prove an ability to scale cost-effective growth for this must-have product, smart VCs will be knocking down your door to invest as much as you can realistically absorb – and often more.
17. Your marketing spend should be very minimal until you validate that you have created a product that people want or need (an important exception is for network effect products, which I’ll cover later). I would suggest 95/5 ratio between product and marketing. You don’t necessarily need a marketing person on the team to do this early validation.
18. Once you’ve validated that people want or need the product, you should spend as much as you possibly can on customer acquisition as long as the value of each user exceeds the cost of acquiring them.
19. Often this requires raising additional funding, but if you can present proof of profitable, scalable marketing channels then it should be easy to raise the additional funding.
20. Hopefully a great team gets you at least an OK product, and ideally a great product.
21. Great products are really, really hard to build.
22. Markets that don't exist don't care how smart you are.
23. In my experience, the most frequent case of great team paired with bad product and/or terrible market is the second- or third-time entrepreneur whose first company was a huge success. People get cocky, and slip up. There is one high-profile, highly successful software entrepreneur right now who is burning through something like $80 million in venture funding in his latest startup and has practically nothing to show for it except for some great press clippings and a couple of beta customers -- because there is virtually no market for what he is building.
24. A great team is a team that will always beat a mediocre team, given the same market and product.
25. it also doesn't really matter how good your team is, as long as the team is good enough to develop the product to the baseline level of quality the market requires and get it fundamentally to market.
26. The only thing that matters is getting to product/market fit.
27. Product/market fit means being in a good market with a product that can satisfy that market.
28. You can always feel when product/market fit isn't happening. The customers aren't quite getting value out of the product, word of mouth isn't spreading, usage isn't growing that fast, press reviews are kind of "blah", the sales cycle takes too long, and lots of deals never close
29. And you can always feel product/market fit when it's happening. The customers are buying the product just as fast as you can make it -- or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You're hiring sales and customer support staff as fast as you can. Reporters are calling because they've heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Buck's.
30. I believe that the life of any startup can be divided into two parts: before product/market fit (call this "BPMF") and after product/market fit ("APMF").
31. Look for larger schools of fish nibbling at your product but not buying. Solve their problem.
32. At this point the spend ratio generally tips toward marketing. I’ve seen it as high as 80% to marketing and 20% to product.
33. The exception for network effect businesses mentioned earlier is for the following reason… The user experience for a network effect product improves with each additional user. You may need to reach a critical mass of users before you can validate that the product is important for users.
34. Great products aren’t anointed by product gurus. Only customers can decide if a product is great.
35. Customers will decide your product is great if you can map it to their motivation for changing to your solution. All customers change from something. Generally they either switch from a competitive solution or from just tolerating a problem without a solution. New products should decide on one of these markets. Trying to serve both markets generally leads to failure.
36. One way to decide which market to serve is to ask yourself: “when we are generating $100m in revenue, which type of customer do we think will contribute the majority of this revenue?” Your guess is usually the market you should serve.
37. If you decide to target “greenfield” people (those without a current solution), then your product roadmap should be focused on simple, effective execution of their desired task. Simplicity is usually much more important for greenfield users than being feature rich.
38. Common gripes include price, reliability, poor customer service, lack of key features, etc. You’ll need to both message this differentiation and also deliver on the promise. A “false promise” will cause a high churn rate (people who stop using your product).
39. You’ll know you have created a great product when users tell you they can’t live without it. Unfortunately the “cult of great product” occasionally forgets about these critical components of building an indispensible product.
40. the fact is marketing is not appropriate for startups in the initial stages of customer development.
41. His recommendation is to form a customer development team led by a “head of customer development.” The team should include the CEO and spend a considerable amount of time in the field with prospective customers validating/refining hypotheses about their target customers and the problems they are solving. He says this team “must have the authority to radically change the company’s direction, product or mission and the creative, flexible mindset of an entrepreneur.”
42. After five years in the VP Marketing role at LogMeIn, I too recognized that the initial stages of customer development are very different from marketing in the later stages of a startup or especially a large established company. In fact, I concluded that much of my success as a later stage VP Marketing (both companies filed for IPOs) was the result of momentum we had built in the early stages of customer development. I decided that going forward I would specialize in early stage customer development.
43. I was first introduced to Four Steps to the Epiphany when I was Interim VP Marketing at Xobni during the first half of 2008. I had been looking for resources to help me understand how to drive adoption of this innovative market-creating product (a very different challenge than we had at LogMeIn which disrupted an existing market). The book provided a great framework to follow as we worked to drive early customer adoption. Since then I have helped to accelerate market adoption at two additional startups, while continuing to advise at Xobni.
44. The second twist is that I add a customer development specialist when the Validation Step begins, which is the role I fill with startups. I belive eventually many people will specialize in this critical stage. Without a specialist, startups waste critical time and resources deciding where to execute. It’s surprising how similiar the process of uncovering the critical information needed to drive customer adoption across different types of startups.
45. The good news is that I’ve found ambitious, analytical recent college graduates to be ideal candidates. They are easy to find and their salary and equity requirements are also much lower than a VP Marketing – freeing up resources to bring in a customer development specialist.
46. Once the startup has discovered how to drive customer adoption and begins building momentum, it should be easier to attract the long-term VP Marketing (or promote the head of customer development).
47. Not only are engineering marketers more capable of getting the essentials done, they can use their reserve of time and creative energy to be scrappy about building marketing experiments. And of course the experiments they build on their own can be much more interesting than us non-engineers.
48. One way I have worked around my engineering deficiencies has been to hire the skills onto the marketing team. For example, in my last long-term VP Marketing role I hired a front-end designer/engineer to design and code landing pages and a dedicated DBA to build reports and run ad hoc queries.
49. Very few people have all three skills, and even if they come close, they are rarely in perfect balance. In modern business Steve Jobs is probably the only person who even comes close, which arguably took him 25+ years.
50. Many of these differences are ingrained - some mentally, but mostly from our education systems which stream students early and don't actively encourage the mixing of hard science, arts and commerce.
Challenges:
1. So many startup theories come to play
2. So many unproven process.
3. There is no rule to succeed; Everything is possible, and not regulated.
Signs of Product/Market Fit.
1. A pipeline of supplies are coming and waiting
2. The AAARR is working from end to end.
3. Customers are happy
4. We are making money
Signs of Product/Market Not Fit:
1. Have difficulty to get customers
2. The product is not getting viral
3. Customer doesn't care.
References:
http://web.archive.org/web/20070701074943/http://blog.pmarca.com/2007/06/the-pmarca-gu-2.html
http://www.startup-marketing.com/the-startup-pyramid/
http://www.startup-marketing.com/category/vision/
http://www.startup-marketing.com/vision-synching-in-a-lean-startup/
http://redeye.firstround.com/2010/08/heat-seeking-missiles.html
http://www.startup-marketing.com/category/product/
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