Lean startup · Academics

Revenue, Pivot or More Customer Development?

Lucas E Wall

March 27th, 2014

Writing to get the collective insight. It feels like I am in front of competing opportunities.

My area of focus has been small business and location decisions (e.g. which locality/town to chose and why). Think Carfax, but for small business locations.

I initially launched a product, but after months of trying to push it and sell I decided to go back to the drawing board and emerge with a stronger product via lean customer development.

So, after months of doing lean customer development (problem interviews mainly), I have not come with a strong problem to solve. Sometimes it feels I am in front of creating another vitamin as opposed to a pain killer (lean customer development jargon/reference). Interviewed a number of small business owners and each one of them is a unique case. No clear trend among respondents, no clear unified problem.

At this point, option number one enters the picture. Continue doing lean customer devleopment, but focus on one vertical alone.

The second option is to stop customer development and focus on what could be the only strong signal I have gotten once and again: foreign investors wanting to buy a small biz in the USA need guidance of all sorts, among which understanding difference among localities is a must. This would be a pivot from current focus (US small biz buyers and current owners).

Then the third and may be more tempting option comes into play. As part of my research around the ecosystem I started the conversation with a serial entrepreneur asking for guidance. During the conversation he offered distributing a product with certain similarities, but not exactly what I have. Risk here is to develop something for one distribution channel, away from the problems of end customers.

Could I go after option three in such a way that I begin with small (minimum viable) product and use the situation to test with real life customers what they want? 

Wondering how to ponder each scenario and weight risks and rewards. 

What is the best way to think about what seem to be competing opportunities?

Eric Rogness Technical Product Manager

March 27th, 2014

I find the main failing of lean customer development and "which opportunity will generate profit the quickest?" is that the result is not necessarily the most scalable, profitale business for the longer term. For instance, here specifically and in many other scenarios, professional services and consulting are hands-down the quickest ways to turn a profit. What's the quickest way for a developer to make a buck? Consulting. What's the quickest way for an MBA to make a buck? Consulting. But it may not be the driver of long term profits you seek.

Eric Rogness Technical Product Manager

March 27th, 2014

Not a complete answer, but for the third (and most attractive?) option, rather than viewing the serial entrepreneur as a "distribution channel", is there an opportunity to work together as part of the same business?

Luis Avila Owner/Fullstack Architect at IdeaNerd LLC

March 27th, 2014

Was in a similar situation where I had to decide among competing business opportunities. The way I made my choice was to ask myself  "which opportunity will generate profit the quickest?" 

If you can convert your potential customers into paying customers for one of the possible opportunities you're exploring, then maybe that will help in the decision making.

Rob G

March 27th, 2014

not enough info on your various options to offer advice other than if you built a MVP AND spent considerable time to do customer dev / product-market fit and came away with no clearly articulated pain/problem to solve then you can eliminate your original premiss as an option: no pain (to solve) no gain (to your business). You can spend a lifetime trying to convince a prospect that they have a problem to solve - life's too short.

Paul Bostwick

March 27th, 2014

Pretty well laid out Lucas! Here is some "how I understood your options rambling so you can see if and how I understood" then some evaluation points for apples to oranges comparison. Good for you realizing you have not found a signal. I've been seeing a service in your general domain headed in the other direction where they solicit passers by of properties for "what would YOU like here?" information. That struck me as a very clean MVP. The diversity of customer needs and particularities seems high for the customer base you are trying to serve. Not that it might not exist but you seem an able hunter and have not found it yet. So the instinct to pivot seems appropriate. But the classic pivot keeps one foot down and moves the other. What is the foot that is correctly placed? Is it the vertical market you have identified that you want to keep and find some new pain point for that group? Option Two: Is that a consultancy or would you crowd source or match-make in that domain. Those are all cool by me but how you capture that customer set and address their diverse needs would present a tough challenge (a good thing if you can do it.) Do you have support for the notion that they'd go to a stranger for "Biz Sherpa" services and not use their own network for that kind of help? Option Three: I don't get well enough to respond to. So the big question (at the end: how to weigh competing opportunities) If you can only do one at a time (likely) then here are some weighting factors: Timing (can some opportunities keep while others are limited window opportunities?) Upside - (how do they compare regarding market size/win scale) Downside - (how do the fail cases play out - sometimes jobs or next leads are more likely in some domains rather than others - ditto for size of social network you will have at the end of the run) Value Delivery - (which uses your strengths maximally and which are growth challenges and what of the two are most appropriate for you at this stage?) Good Luck!

Taylor Dondich Vice President of Engineering at MaxCDN

March 31st, 2014

Trying to find a valid product market fit is a very difficult and sometimes long journey.  You've started with an idea which you think is great and is going to take off like a rocket.  Then when you build this monolithic thing which is true to your idea, it fails to gain traction like you hoped for.  

So, let's tackle each of your "options" that you laid out in detail.

"Continue doing lean customer devleopment, but focus on one vertical alone"
Okay, it sounds like you've done some interviewing.  This is great!  However, how you lay out your interview greatly determines the value you get out of it.  Is your product available online? If so, take a look at survey.io as a great tool to gather customer development surveys.  If your product is not online, take a look at the sample survey at survey.io/survey/demo to get an idea of the questions.  You'll notice that the questions are not necessarily leading.  And there's the availability for customers to provide open feedback for specific questions.  The intent of these customer development surveys is not to "sell" to the customer but get honest non-leading feedback.  If you perform the survey/interview yourself, you may catch yourself selling, or justifying, your product.  And sometimes these customers will tell you what you want to hear.  Providing a clear survey such as the one I mentioned will help avoid this.

Now, if you've done an interview/survey like this, you've got to look at it clearly.  I'm going to go out on a limb and show the recent statistics of my customer development survey to show examples.

First, here's a response to a solid question:

This question is great because it immediately tells me if I'm the right track with product market fit.  Over 90% of my visitors state they would be very or somewhat disappointed if my product fell off the web.  The majority of those being very disappointed.  I'm doing something right.  If you see the majority showing Not disappointed or below, then you realize you haven't created enough value in your product or you haven't make it clear enough.  You've got some work to do.

Here's another:

Okay, this gives me a really good idea of the competitive landscape I'm facing.  I can see that I'm providing enough value to woo half my visitors from any competitor.  However, based on this feedback, I can see the competitive landscape for language education, specifically Japanese, is pretty big!  See the speech bubble? This gives me the chance to see what open ended answers respondents gave for this question. Most likely they'll tell me what competitors they would use and WHY.  This is crazy important. Do you have the ability to combat the reasons they would use these competitors? Do you have comparable features in your product? Can you excel? 

What if the majority of people said they would go to competitors? Maybe the landscape is TOO rich with well known related products. This means you'll have a very tough uphill battle to gain a foothold in the marketplace. You mentioned building a new vitamin. Imagine how difficult it is to get any level of traction in that industry.

So, based on your interviewing, you should REALLY have a strong idea of how much value you are presenting to your customers already.  These surveys will tell you if you are on the right track or if you have to pivot to a different path altogether.

The fact that you are asking this question leads me to believe you haven't found a strong response in either direction in your interviews or you've got to do more. (I try to re-perform my customer development survey every quarter to ensure proper direction).

Option #2:
stop customer development and focus on what could be the only strong signal I have gotten once and again: foreign investors wanting to buy a small biz in the USA need guidance of all sorts, among which understanding difference among localities is a must.

First off, never stop customer development.  It's a constant process and should never be considered "finished".  Do you have a large enough sample size to truly see that this is the only positive strong signal you've gotten?  If so, what's your domain knowledge in this international customer base? Will you be able to satisfy them? How much legwork are you going to need to do? This also requires doing competitor research to ensure you aren't putting your feet into a crowded market that will require crazy ramp up.

Option #3
As part of my research around the ecosystem I started the conversation with a serial entrepreneur asking for guidance. During the conversation he offered distributing a product with certain similarities, but not exactly what I have.
Ah, the savior! When you're struggling with gaining traction, you may come across someone who wants to work with you on maybe something similar.  The red flag that I heard was "serial".  How many active investments is he working on? What kind of role will he play? Only distribution? As an advisor? What's his relationship to influencers in the marketplace he is proposing? 

If he has 10+ active investments but is playing no active role in any of them, he's shooting for what sticks.  It sounds like you need help in guidance and if this person is willing to really work with you on product development and has the pull for immediate distribution channels, sounds like it's a positive idea.  However, if you go down this path, do it 100% effort.  Don't think about doing a MVP in this lane while struggling with customer development with your original idea.  You need to put forth your entire effort.  Entrepreneurship is about taking chances and then pushing that chance with all your might.

I hope my feedback was helpful.  In the end, my response in summary is this:

It sounds like you haven't done enough product market fit research to determine if the idea you have presents enough clear value.  If you can't explain what your product does to the lady at the supermarket in less than 1 minute in a clear and passionate way, you haven't worked on this hard enough.  If you've done interviewing and realized that your original idea didn't gain traction but some small feature in your product suite was appealing to customers (international investors funding U.S. based businesses and the tools to help them out), then do more interviewing and research into that signal to really determine it's viability. 

Lucas E Wall

March 28th, 2014

Thanks Eric, Luis, Rob, Robert, and Paul for your replies. I appreciate the different points of view and ways of slicing and dicing the options.

This is the type of problem I always longed for and the main reason behind wanting to be an entrepreneur: not one clear path forward, imperfect and conflicting information, risks, and eventually, huge rewards.

I am inclined to:

First: leave option 1 on the side for a while (more customer development trying to focus on a vertical).

Second: get a better picture of what the international market vector (foreign investors wanting to buy a small biz in the USA) would mean and how to test it before jumping on it.

Third: slice and dice the partnership opportunity in a series of steps that minimize the risk of building a short-sighted product.

In other words, more analysis and pondering of options, but focusing on ways to capture the upsides while minimizing the downside (if such a magical thing is possible). Borrowing a lot from Paul here…

Again, thanks to all for your comments and ideas.

PS: If you weren't all so far away I’d invite a drink at the very least. :)

Robert Birchall Digital Marketing Consultant with a Passion for Helping Businesses Grow.

March 27th, 2014

That left me confused. Sounds like you are looking for problems, in-order to uncover a business opportunity. As an alternative, maybe look at already great businesses and find ways of doing it better.

Andrew Lewis CEO at DecisionIQ – data transformation, predictive & prescriptive analytics for the industrial internet, IoT

March 31st, 2014

Option 1 is your best, as you have not yet found the pain, that when resolved with your product, will cause customers to beat a path to your door. 

You should abandon all notions of your product and focus on finding the pain in your industry sector. Customer pain is the source of true disruptive demand, it's what will cause them to change their behaviors and switch to another product (see the book "Immunity to Change"). 

Finding true unmet customer pain that will lead to a scalable company is really hard, discouraging and it typical will take 150-200 interviews. Building a product to meet the pain is easy, in comparison -- so don't let the easy part drive your work. Having a product in mind poisons the process as it introduces confirmation bias and will actually require you to make more interviews, assuming you see the process through to the end. 

PS -- reaching the end empty handed could also mean there is no unmet pain in the sector you are researching. But that is of great value, too!