Hello my friends and happy Monday to you. Last week in our Monday guest post, we heard from my friend Mark Newman of HireVue. He shared with us his unique fundraising experience. I received several emails after that post. Some people didn’t like all the details he shared, but most people loved it. I, for one, admired his candor and thought it was very insightful. Give it a read if you missed it and decide for yourself.
This week, we are in for a real treat! One of my favorite Lean Startup entrepreneurs, Ash Maurya, is joining us on the blog today to discuss new product ideas. Ash is a leader in entrepreneurship and the Lean Startup movement. His book, Running Lean, is one of my favorites. I’d highly recommend you read it if you are thinking about a startup, new product ideas, or are in one (which should be most, if not all, of the readers here). In the meantime, he has favored us with one of the best guest posts I’ve read on this blog. It really is that good.
Read it, bookmark it, and read it again! Great stuff, Ash. Great stuff. So, without further delay, Ash Maurya and ‘How To Vet New Product Ideas and Save Time, Money and Effort’.
Everyone gets hit by ideas when they least expect them (in the shower, while driving, etc.). Most people ignore them – entrepreneurs choose to act on them. But acting on ideas is not without a cost.
I am not just talking about the physical cost of building and marketing a product but also the more intangible, but in my view, even more important the opportunity cost of building out a new product idea.
Committing yourself fully to a product idea or vision can easily consume months and more realistically years of your life. After years of building products that had varying levels of “market success”, my own mantra has become: Life’s too short to build products nobody wants.
We need a better, faster way to vet new product ideas so we don’t waste time, money, and effort. Of all these resources, there is no resource more valuable than time. Time is more valuable than money. While money can fluctuate up or down, time only moves in one direction.
This is exactly what the Lean Startup methodology, codified by Eric Ries, is all about. Under this model, a startup (or product) is built iteratively through a series of small experiments designed to quickly inform and guide us on the validity of our assumptions.
I’ve been rigorously applying and testing Lean Startup techniques to my own products and have distilled the essence of the methodology down to 3 steps:
1. Document your Plan A.
2. Identify the riskiest parts of the plan based on the stage and type of your product.
3. Select the right tactics that maximize for speed, learning, and focus.
While these steps are applicable during any stage of the startup, I’d like to illustrate how to apply them during the initial ideation stage.
3 Steps To Vetting New Product Ideas
As entrepreneurs we tend to be more passionate about the solution and often rush into building a product. But building the product always takes much longer than we think. More importantly, all that effort is predicated on the assumption that we know who the customers are, what they want, and how we will monetize the product. We don’t. The real kicker is that we can learn all these things without actually building the product.
Step 1: Document Your Plan A
The first step is documenting your business model assumptions. There is no substitute to writing this stuff down. Too many founders carry these assumptions in their heads alone which, while the fastest way to iterate, creates a self-fulfilling ‚ reality distortion field:
Reasonably smart people can rationalize anything but entrepreneurs are especially gifted at this.
There are several techniques for capturing your initial plan. Business Plans have traditionally been used for this purpose. While the intent of business plan writing is sound, taking several weeks or months to write a 60-page business plan largely built on untested assumptions (guesses) is a form of waste.
The Business Plan is a document investors make you write that they don’t read.
– Steve Blank
More importantly, since most of these assumptions are likely to be proven wrong anyway, you need something less static and rigid than a business plan.
My tool of choice for documenting my assumptions is creating a one-page business model using the Lean Canvas format. Lean Canvas is my adaptation of Alex Osterwalder’s Business Model Canvas as is shown below:
It captures the essence of your business model on a single page and serves as a powerful tool for pinpointing what you don’t yet know i.e. the riskiest part of your model. You can learn more about it here.
Step 2: Identify the Riskiest Part of the Model
While what you consider risky may vary by product, one of the risks you always need to tackle first is “problem risk” i.e. determining whether your “problem is worth solving” in the first place. If the problem isn’t worth solving, spending any amount of effort overcoming other risks like technology risk through great feats of engineering are all forms of waste.
A “problem worth solving” boils down to three questions:
1. Is it something customers want? (must-have)
2. Can it be solved? (feasible)
3. Will they pay for it? If not, who will? (viable)
Step 3: Maximize for Speed, Learning, and Focus
The fastest way to learn is not by building the product, or running a survey/focus group, but conducting problem interviews with potential customers. A problem interview is a special kind of interview where you decouple the problem from your solution and focus on truly understanding just the problem first.
You are specifically looking to answer the following questions:
1. Who has the pain? (Customer Segment)
While we would all like our new product ideas to turn into mainstream products, starting there is a mistake. Read/re-read Geoffrey Moore’s book: “Crossing the Chasm” where he describes the customer adoption curve and makes a compelling case for focusing your initial efforts on establishing a beach-head with early adopters. It is far more effective to focus all your efforts on a smaller, more passionate, sub-segment of customers first.
During the interviews you are looking to find early adopters and eventually be able to articulate the qualifying attributes that define them.
2. How do customers rank your problems? (Problem)
During the interview, you need to gauge the customer pain level towards your set of problems: must-have, nice-to-have, or don’t-need. You are ideally looking for a strong must-have resonance but beware that people inadvertently lie with this question. You still need to ask them the question but verify their answers by way of probing deeper in the next section.
3. How do customers solve these problems today? (Alternatives)
A lot of entrepreneurs/investors misplace attention on competition early on.
Your competition is driven by your customers – It’s not who you think they are, but who your customers think they are.
Your true competition is best revealed by exploring how customers solve your problems today. Often, they are not who we think. As an example, the most common alternative to an online collaboration tool is not another collaboration tool, but email. Doing nothing could also be a viable alternative for a customer if the pain is not acute enough.
Understanding your customers existing alternatives not only reveals your competition but is also how you verify their problem rankings from earlier. For instance, if a customer ranked your problem as a must-have earlier but then later tell you they aren’t actively doing anything to solve this problem, there is a disconnect.
After a number of problem interviews, you should be in a much better position to gauge whether you have a problem worth solving or not. It’s perfectly okay and expected of you to refine the problems along the way. Armed with a prioritized problem list and refined early adopter definition, you are then much better equipped to formulate a solution.
Preemptive Strikes and Other Objections
Some obvious concerns often raised with this methodology is the “qualitative” nature of this learning. People often cite the lack of statistical significance, or that customers don’t know what they want.
Let’s visit each:
Lack of Statistical Significance
Your initial goal is getting a strong signal (positive or negative) which typically doesn’t require a large sample size.
A strong negative signal indicates that your assumptions most likely won’t work and lets you quickly abandon or refine it. If 5 out 5 customers tell you they don’t a problem, that’s pretty signficant!
On the other hand, a strong positive signal also doesn’t necessarily mean it will scale up to statistical significance either. But it gives you permission to move forward until it can be verified later through quantitative data.
Customers Don’t Know What They Want
Your job is not asking your customers for a list of features for a new product idea. Rather it’s understanding how customers perceive and solve your articulated problems today. Your real job as the entrepreneur is to turn that understanding into a compelling product.
There Are No Silver Bullets
No methodology can guarantee success. But a good methodology provides a feedback loop for continuous improvement and learning that helps raise your odds for success.
The key point to drive home is that finding a “problem worth solving” is the first step for vetting new product ideas and you can almost always do this without building the product which saves you time, effort, and money.