Tim Kastelle

Tag: customer development

  • Those That Get It Don’t Need It, and Those That Need It Don’t Get It

    Those That Get It Don’t Need It, and Those That Need It Don’t Get It

    Here’s a central problem with trying to get any new idea to spread – often, those that get it don’t need it, while those that need it don’t get it.

    It’s a paradox.

    This leads to problems for people that have new ideas.

    Problem 1a: you end up talking to the wrong people. It is easiest to talk to the people that get it – even though they don’t need your idea. Back in my startup days, we often went to First Tuesday in Brisbane to try to build our network. We’d talk to all the other local startups about the problems that we shared, and it was great – they really got it!

    Did it help us build our business? No. No, it did not.

    We were talking to the people that were easy to talk to – the ones that got it. But they didn’t need what we had built. To grow a business we had to talk to the people that needed our ideas. That was a lot harder. It was frustrating, and difficult. Mainly because:

    Problem 1b: you might be solving a problem that people don’t yet realise they have. This problem is the opposite of the first one. This makes it really hard to talk to them, because when they hear your idea, they’ll hate it.

    When this happens a lot, you’re in what Seth Godin calls the Gulf of Disapproval:

    Here’s what he says:

    Start at the left. Your new idea, your proposal to the company, your new venture, your innovation—no one knows about it.

    As you begin to promote it, most of the people (the red line) who hear about it don’t get it. They think it’s a risky scheme, a solution to a problem no one has or that it’s too expensive. Or some combination of the three.

    They need your idea, but they don’t get it.

    The key to solving this paradox is to find the small number of people that will get it and that need it. Even for huge breakthrough ideas, this original group is usually pretty small.

    These people are the blue line in Godin’s drawing.

    Here is how Steve Blank describes them:

    Earlyvangelists are a special breed of customers willing to take a risk on your startup’s product or service. They can actually envision its potential to solve a critical and immediate problem—and they have the budget to purchase it. Unfortunately, most customers don’t fit this profile.

    Earlyvangelists can be identified by these characteristics:

    • They have a problem.
    • They understand they have a problem.
    • They are actively searching for a solution and has a timetable for finding it.
    • The problem is painful enough that they have cobbled together an interim solution.
    • They have, or can quickly acquire, dollars to purchase the product to solve their problem.

     

    How do we find these people? We start by building a model of who we think they are, and what we think they need. This model is almost certainly wrong. We fix that by going out and talking to these people to learn about the problems that they are actively trying to solve.

    Because we’re trying to identify problems, we’re not pitching during these conversations. We’re learning. If we do that enough times, we’ll figure out what a small group of people really need right now, and, with luck, we can build it for them.

    People usually can’t explain what they need, especially if the idea is genuinely new. So you need to look for evidence of problems. In my experience, the sign that we’re really onto something is in Blank’s fourth point – when we find people that have already hacked together a solution of their own. This is strong evidence.

    It turns out that our two groups of people aren’t mutually exclusive – there’s a small overlap:

    When we have a new idea, our job is to figure out what these people need, who they are, and how to find them. Once we’ve done this, then more people will start to get the idea, and more people will also start to need it.

    That’s the only way to cross the Gulf of Disapproval.

  • How to Find Your First Customers

    How to Find Your First Customers

    We interviewed the plant manager and he said that they didn’t have any problems with scale, but we know that they do!

    That’s what a team working on anti-scaling technology reported back early in the Lean LaunchPad process. This statement illustrates several of the common issues that we run into doing LLP.

    The first issue is that the customer development process is different in business-to-business settings than it is when we’re targeting end users.

    My response to the team was: “There’s not a plant manager in the world that has scaling problems, but there are plenty of production engineers that do.”

    It’s harder to identify customer needs (and pain) inside of a business, because there are lots of different agendas in play. People often aim high in an organisation’s hierarchy for their customer development interviews, but this isn’t always smart. We have to get to the people that have the direct experience with the problem that we’re trying to solve.

    If we’re selling into an industrial plant, there are many people with an interest: plant operators, production engineers, process managers, finance people, upper management. All of them have different, sometimes competing, needs. We need to understand the needs of all of these people.

    For customer development, we need to start with the people most directly interested in the problems we’re trying to solve.

    The second issue is that our initial hypothesised customer segments are almost always too broad. This team started out with a target market of ‘mineral processing plants.’ Too broad.

    One crucial sign that we need to sharpen your target segment is when we talk to people that seem similar, but their responses are completely different. This is very common at the start of customer development, and it’s one of the reasons that our confusion level increases when we start the process.

    Jessica Hagy
    From Jessica Hagy’s great post on change.

    When this happens, we must pay attention, because it means that we’ve just found a way to segment the market. Conflicting feedback means that the people we’re talking to are different in some important way, and we have to figure out what that is.

    When you identify people with common problems, then you are zeroing in your target segment.

    The third issue is that people that are actively trying to solve their problem are our early adopters.

    Justin Wilcox has built a useful question script generator. His generic customer interview questions are:

    What’s the hardest part about      [problem context]    ?
    Can you tell me about the last time that happened?
    Why was that hard?
    What, if anything, have you done to solve that problem?
    What don’t you love about the solutions you’ve tried?

    Questions like this are great both for learning about the problems that we’re trying to address, but also for finding early adopters.

    For our scale prevention team, the plant manager is not an early adopter – there’s no pain there at all.

    The team eventually ran into two bunches of people with more promise. The first were production engineers that had scale problems, and had built redundant processing lines to deal with it. This is an expensive way to deal with the problem, but it reduces the immediate pain level. Also not early adopters.

    The second bunch was in a different type of processing plant, where scale problems meant they had to shut down the production line. These guys have an immediate, expensive problem, and they’re actively trying to solve the problem. They’re our early adopters.

    So after about 50 customer development interviews, the team was able to say:

    Our first customers will be plants processing Mineral X, where the incoming water quality is poor [which leads to specific regions in Australia], and where they have to stop production to descale.

    Because this group has an urgent, expensive problem, they are much more willing to try new things. And the new things don’t have to be perfect – they’ll be more willing to experiment with a prototype rather than a fully-developed product.

    The guys with the redundant processing lines are still prospects, but they look like this:

    Later customers will be plants being built to process Mineral Y.

    That’s also a pretty specific group. In order to be comfortable saving money by not building redundant lines, they will have to be very confident in the new anti-scaling process. So they can only be approached once there is a solid track record in place.

    Customer development is trickier when we’re trying to learn about businesses. It’s also trickier when we can’t just build anything that people want, which is the case for people doing scientific research. But the risk is also higher in both of these situations, which means that we need to do customer development to make sure we’re creating real value by solving real problems.

     

    Note: Over the past year, I’ve been running (with help, of course!) a bunch of Lean LaunchPad programs with the Commonwealth Science and Industrial Research Organisation (CSIRO) aimed at increasing the impact of all the great research that they’re doing. This is part of a series reflecting on what we’ve learned through the course of six programs involving 40 research projects and more than 250 people. The other posts are:

  • Is Our Business Model Ready to Launch?

    Is Our Business Model Ready to Launch?

    Why do new ventures fail? There are three areas of risk when we launch something new:

    1. Technical (or product) risk: can we build it?
    2. Market(or customer) risk: does anyone want it?
    3. Cash (or business model) risk: if people want it and we build it, can we make enough money from it?

    When most people try to launch something, they often focus too much on technical risk. This tendency is amplified when the projects are based on scientific research. This is a mistake – market risk is by far the biggest.

    Here is what the Lean Startup team says:

    If you’re wondering which kind of risk you face, let me help you out: It’s customer risk. Nearly always, it’s the biggest question, because you simply don’t know the value, if any, your new product has for potential customers. When I say, “Nearly always,” I mean: this is so often the case, you should assume it’s true every time.

    The tricky part is that commonly, product risk looks more urgent. After all, if you’ve hit on an exciting new idea that you’re pursuing, you’re doing so because you believe other people will be interested in it, too. And if you assume the demand will exist, you’ll be tempted to make sure you can build the product before you offer it to people.

    The normal process in research-based organisations like universities, or the CSIRO, who I’ve been working with recently is to do the research first, which reduces technical risk. Then give the new technology to a business development team to bring it to market, which requires reducing market and cash risk. But if the biggest risk is market (customer) risk, is this smart?

    One of the key reasons for using a Lean Startup approach like Lean LaunchPad is that it helps you address all three types of risk simultaneously. Doing customer development interviews help you build a validated business model, which reduces market and cash risk.

    Steve Blank developed a tool that he calls the Investment Readiness Level (IRL).  It is designed to track your progress in building a validate business model, and it looks like this:

    investment readiness level

    It’s a great tool. Here are the advantages to using the IRL:

    • The Investment Readiness Level provides a “how are we doing” set of metrics
    • It also creates a common language and metrics that investors, corporate innovation groups and entrepreneurs can share
    • It’s flexible enough to be modified for industry-specific business models
    • It’s part of a much larger suite of tools for those who manage corporate innovation, accelerators and incubators

    When we started using the IRL in our CSIRO Lean LaunchPad programs, I noticed a problem – the teams often overestimated how far they had progressed. To help with this, I made a modified version of the IRL with criteria to assess for each level:

    Investment Readiness Levels
    Click on the picture to see a bigger version of it.

    I also included information on how many customer development interviews you need to be confident in your assessment.

    We used this in our most recent programs, and here are some observations:

    • It’s great for planning your learning. This gives you a pretty clear idea about what things need to be validated before you move to the next level.
    • While the levels are important, ultimately you need to check off all the boxes. All of the things included here help you build and validate your business model.
    • Teams tend to progress linearly over Levels 1-5, and then they start doing bits from several levels at once. The critical step in all of this is getting to Product/Market fit at Level 5, and the process for getting there is relatively straightforward. Once you do this, the sequence of actions is less important.
    • It’s possible to end up back at Level 0. Level 0 is “We have an idea.” We’ve had a handful of teams do 90+ customer development interviews which led to the conclusion that there currently isn’t a good use for the technology they’re working on. This isn’t a fun outcome, but it’s an important one – it allows them to move on other research.

    Lean LaunchPad flips research commercialisation on its head. One thing that we’ve learned in doing this is that good customer development actually changes the science back in the lab. This is critically important since research projects can run for five years or more  – it’s important to be working on ideas that will have impact.

    Science-based research will always have higher levels of technical risk than other ventures. However, market risk is still incredibly dangerous. It’s important to use tools like Lean LaunchPad and the IRL to reduce all of the risks we face when we’re trying to change the world.

    Note: Over the past year, I’ve been running (with help, of course!) a bunch of Lean LaunchPad programs with the Commonwealth Science and Industrial Research Organisation (CSIRO) aimed at increasing the impact of all the great research that they’re doing. This is part of a series reflecting on what we’ve learned through the course of six programs involving 40 research projects and more than 250 people. The other posts are:

  • The How and Why of Customer Development

    The How and Why of Customer Development

    Henry Ford famously didn’t say:

    If I had asked people what they wanted, they would have said faster horses.

    People often use this quote to justify not talking to potential customers, because people don’t know what they want.

    It’s true, people don’t know what they want. But you still need to talk to them. Why? Because they do know what their problems are.

    Over the past year, I’ve been running (with help, of course!) a bunch of Lean LaunchPad programs with the Commonwealth Science and Industrial Research Organisation (CSIRO) aimed at increasing the impact of all the great research that they’re doing. This is the first post in a series reflecting on what we’ve learned through the course of six programs involving 40 research projects and more than 250 people.

    The first thing that we’ve learned is that talking to people is essential.

    Here’s the issue: when we develop a new piece of technology, there are an infinite number of business models that you can build on top of that tech – here’s one good case study. Lean startup tools are a great way to discover the right business model for your new thing.

    Talking to people, or customer development, is the central tool in the Lean LaunchPad. It works really for building software startups, but it also works for commercialising research-based technology as well.

    When we think about our new technology, we have a business model for it in our heads. For example, when Alexander Graham Bell invented the telephone, his belief was that it would be too inefficient for person-to-person use. Instead, he thought that people would use the telephone to listen to musical performances when they didn’t have an orchestra in their town.

    In other words, the first business model in our head is made up of a bunch of guesses.

    Business model guesses

    Bell found out his business model was wrong through trial and error. But this is dangerous, and risky. Lean LaunchPad is the tool for converting those guesses into knowledge about what actually creates value for people. To do this, we must talk to about 100 people.

    This challenges most people, especially scientists. The process looks like this:

    Interviews

    Before you talk to anyone, our level of uncertainty about our business model is usually zero – we’re like Bell and his concerts. Then when we start talking to people, our level of uncertainty about our business model shoots up, and we feel incredibly confused about what to do.

    This confusion often makes people give up on talking to people, which is disastrous. The way to break through the confusion it to talk to more people. As we do, eventually we learn about what’s going on, and our level of confusion drops. In time it gets close to zero again – although if we’re smart, we always retain a bit of doubt.

    Here are some common questions about customer development interviews:

    • How do we know if it’s working? We use Steve Blank’s Investment Readiness Level scale as a measure of how far we have advanced in building our business models (see Part 2 in this series). In our programs so far, progress on the IRL has been pretty close to directly proportional to interview numbers.
    • Why do we need so many interviews? There are a few reasons. One is that when we start out, we aren’t very good at interviewing – it’s a skill we need to build. The second is  an idea in qualitative research called interview saturation. It is a state that you reach once you’ve talked to enough people that you stop hearing new ideas. The number of people you need to reach saturation will vary, but on average it’s around 25. To build a complete business model, we need to reach saturation on several different issues. You can see why we need 100 interviews to feel confident.
    • We’ll just focus on quality interviews, won’t that be better? No. First, you don’t know in advance which interviews will be the high-quality ones – especially when you’re starting out. The more people you talk to, the easier it is to figure this out in advance, but the only way to do it is to talk to a lot of people. Second, after you talk to a lot of people, you end up having a very high percentage of high-quality interviews from #60 on. The people that talk to me about quality over quantity have usually done less than 20 interviews, with maybe a handful of those being high-quality. The teams that have gotten up above 60 interviews usually have more than 20 high-quality interviews, which adds a lot of new data. In customer development, quality is an emergent property of quantity.
    • Steve Jobs didn’t do customer development, why should I? You’re not Steve Jobs. Also, the thing that Jobs did have was a very deep understanding of what problems people are trying to solve – customer development is the tool you use to gain that understanding yourself. The main idea is that we want to talk to people about what problems they have right now, and how they are currently solving them. As we learn about their problems, then we can figure out how to build a business model around our technology that will create value for them.

    There’s one last big question: what questions should we ask? Fortunately, there are a lot of great resources for this:

    If you use these links, you can build a good set of interview questions for your own customer development work.

    And you should do that, because it’s the best way to make sure that your great idea has the greatest impact on the world.

    Note: Over the past year, I’ve been running (with help, of course!) a bunch of Lean LaunchPad programs with the Commonwealth Science and Industrial Research Organisation (CSIRO) aimed at increasing the impact of all the great research that they’re doing. This is part of a series reflecting on what we’ve learned through the course of six programs involving 40 research projects and more than 250 people. The other posts are: