TES Brant Cooper and Patrick Vlaskovits


>>I’d like to hand it over to Brant and Patrick,
thank you very much>>So, anybody here heard of lean startups,
or customer development? Or the buzzword pivot, anybody been reading
about the word pivot? I actually throw that one out there because
almost everybody has been aware of the buzzword pivot but this group, thats group though,
I love to talk to people that haven’t heard of this stuff before. So Patrick and I are super passionate about
lean startups and customer development so what we are going to do is we are going to
talk to you a little bit about why we are passionate about it, what are lean startups
and then how that might affect the way you do market assessments. Do you have anything to add?>>Sure real quick, who here is actively doing
a startup, anyone? One person here, three, four, maybe five. The rest of you, maybe you can tell me some
of your backgrounds, what you are working on.>>I’m the sales and marketing director for
a small company.>>Okay got it.>>I’m working with him as an independent
sales rep, always looking for ways to tune up my process.>>Okay, got it. Anyone back there, sir, I’m going to pick
on you.>>I’m Haas Patel, I’m an independent consultant
and also teach at UCI Extension.>>Great, the gentleman behind you?>>I’m Chris Harah. I’m in product development with a business
background.>>Beautiful, I love it, product development
guys as well. So there, should we just jump right into it?>>Yeah. So the startup ecosystem, the startup environment
is changing drastically, right? So the amount of money it takes to develop
a product now is extremely low, you have social media marketing that means reaching a broader
audience costs a lot less money. Primarily if you are working in software,
internet, wireless, hardware solutions for IT, as well, some markets are obviously clean-tech,
life sciences where its still expensive to build products, but even with those, the price
of building a startup company is drastically lower than it was even five to ten years ago. Theres a ton of money out there for investment,
and its not just in the Venture Capitalists anymore. You have incubators, accelerators, that are
willing to start with very small investments to get people going. There are a lot of angels now in the micro-VCs,
you’ve maybe heard about, super angels. So there is money flowing to startups, really,
like never before. This is also a global phenomena, its not just
the US that has these entrepreneurs coming out of the wood works to build new products,
its happening in every country. Patrick and I hopefully have an opportunity
to travel to central and south america this summer, traveling to Canada, people that we
see tweeting about lean startups and customer development are literally all over the world,
so it is very exciting that way. Entrepreneurship is very social now, so its
not only in terms of your marketing, but its also going to meetups, its also going to the
resources online, so the amount of mentoring that goes on, the collaboration that happens
between entrepreneurs is like it never was before. I used to go to networking meetings 20 years
ago and then it was sort of all about me, I wanted to tell you about me and give you
my business card, and today, a lot of these meetups are completely flipped, its tell me
about you, how can I give you value. And its really a great collaborative environment,
and what it means is that today’s entrepreneurs have a lot of peer support as well as a lot
of mentoring. Even classes like this, so what that makes
is today’s entrepreneurs are a lot more savvy than entrepreneurs have been in the past. They are not more intelligent, but they are
coming to the game with a lot more knowledge, a lot more help, a lot more understanding,
the ups and downs, the rollercoaster ride of being an entrepreneur, so it really is
this sort of new environment. And what we are seeing now is that there are
hundreds of thousands of Entrepreneurs, it amazes me how many people are coming up with
ideas and actually are able to go launch their product because it doesn’t cost that much. People graduate from college, people are in
college assuming that they are going to be an entrepreneur, that they are not going to
go work for a business for 10, 20 years, and then become an entrepreneur, its straight
out of college. So Patrick and I just both participate in
these lean machine, lean startup machine weekends. Has anyone heard of a startup weekend? A startup weekend is usually when you get
a bunch of engineers together in a room for a weekend, voluntarily, this is what they
are doing on their weekends, and they build products. And so the traditional method is that you
go around and you build products that nobody cares about, right? Well the lean startup approach to that is
you actually take that same team of engineers and they get out of the building. And they do that in order to learn whether
the products they are going to build over the weekend, whether anyone might want them. Why I bring this up now though is that what
is amazing to me is to see the number of quality ideas that are pitched at these startup weekends. You get 50-60 people in a room, half of them
standup and pitch their ideas, and you know, they aren’t all rockstar ideas, they aren’t
all great ideas, but this is being repeated over and over again, all over the world, so
to me its just this phenomena of entrepreneurs. So, because the cost of change, because of
all this money, the power in the relationship between investors versus founders is now shifting
to the founders side. So its no longer that you are going to have
to stand in line to go meet with a VC on the VCs ground. You get to start building your product and
prove your business model with low amounts of money, perhaps seed funding, and then the
venture capitalists are going to come to you. My personal belief is that this is driving,
VCs are going to need to change their model so they are no longer just going for the big
win, which is their traditional strategy, they are going to invest in a bunch of companies,
hoping one of them is going to be a hundred million dollar company and then they get the
returns they want. And so a lot of the VCs we are seeing, a lot
of the micro VCs are really looking for the smaller wins too which means mergers and acquisitions
that give founders a life changing experience. They sell their company for 15, 20, 50 million
dollars, thats a life changing occurrence. So again, in my belief, if these startups
are building their businesses in this new way in this new startup methodology then there
is this potential for our economy to develop what I call an Innovation Machine. So its my belief that we are shifting away
from services, we are outsourcing services now, so what is our advantage going to be
as an economy, and it is going to be our entrepreneurship. It is going to be entrepreneurs who are increasing
productivity of individuals and businesses through the new products that they build. So what we are having now with hundreds of
thousands of entrepreneurs, each targeting a market, carving out a niche, and creating
products suited for that niche, I really believe we are creating this innovation machine. And I think that the methodology to do it
is through lean startups and we are going to say why.>>Really quickly, what, I really also want
to make clear how we are positioning this. This is really different from what happened
with silicon valley or the dot com boom 10 years ago, 11 years ago now, where it was
all about the 100 million dollar exit, cost you 5 million dollars, six months, 10 guys,
to build what would take you one guy and some out of the box software essentially. So its radically, I think in 10 years we’ve
had orders of magnitude change on how to build scalable startups in terms of the knowledge
needed, the knowledge transfer, low cost, again is orders of magnitude different, so.>>So there are three popular start up philosophies
that get play on twitter and the blogosphere and this is how I summarize them. The first one is be like Steve. So instead of, you know, the be like Mike,
they say, the ad compaign for Michael Jordan, the analogy was a highschool counselor actually
goes and talks to these young student athletes, and say, yeah, really what you should do for
your career is go be like Michael Jordan, so we have these investors out there and they
are holding on to their dream of the hundred million dollar win or whatever. And they are saying, oh all you got to do
is go be like Steve Jobs. So that is strategy number one, be like Steve. Strategy number two is almost the opposite. Its the just do it faction. And the just do it faction, my sports analogy
for that is everybody could be an olympic athlete if you just try hard enough, so its
all about execution. So in the startup world, what that means is
all of you can be billionaires, and if you aren’t its just because you aren’t working
hard enough. The third strategy is the lean startup methodology. So what is it about lean startups, what is
it about lean startups. So here’s the two big ideas around lean startups. The first is that a vast majority of startups
fail, not because they can’t build a product, its because they had no market. So if you think about that for a second. The technology is advanced enough now that
most companies, most products you want to build are pretty darn easy to build. You can build internet products, you can build
software, you can build wireless iPhone apps, there is not technology risk. Where there is risk is in the market, do people
care about what you are building.>>So again, this is deceptively simple. I often say this, or I often reference this. And then people go, their eyes sort of glaze
over and they go, oh well of course. Its not of course, because if it was, we wouldn’t
have had the dot com boom 10, 11 years ago. The person that advanced this idea is a person
named Steve Blank, he wrote a book called the Four Steps of the epiphany. If you are doing any sort of product development
or startup, you should go out read this book today, its called the Four Steps of the Epiphany
by Steve Blank, and its got this big idea. Again, deceptively simple, and massive idea,
and it has a huge, sort of, seismic effect in the startup world. Also I think, oh there goes, another version
of it, very similar.>>Great, so the second idea you want to keep
in mind is that your business model, you are building a startup, its very likely that some
major aspect, probably more than one, is going to change at some point. So most of the products that we know and love
didn’t start out the way we know them. Does anybody know how youtube started out? They started as a dating site. PayPal started out as microprocessors on the
palm pilot. You got any favorite Patrick?>>Yeah, Flikr was I think, it was a chat
application in a game, who else. You can also take stuff from offline, like
WiPro, the Indian IT services firm, multi-billion dollar firm, started out as vegetable oil
processing plant, now they are multi-billion dollars. The point is that due to market conditions,
right, companies and startups have to evolve. Um, and>>And when Christensen wrote this in the
early 90’s, he referenced Intel which started out in DRAM before they were into microprocessors,
and Honda actually made their foray into the United States by essentially inventing off
road motorcycles when what they were trying to do was compete with BMW and Harley Davidson
for street bikes.>>I think Facebook is the same story right,
they started out as like a dating site of the Harvard guys.>>Right, yeah, the more you learn about these
companies, and its why Pivot is such a buzzword out in our world now. Its because everybody is talking about, oh,
you got to pivot, you got to pivot, you got to pivot, and of course you don’t want to
overdo this, and now its sort of like this internet meme, its all about pivoting.>>Theres also sort of a conspiracy. Conspiracy is a strong word, but, when you
see successful startup that made it big, the marketing people, the PR folks go back and
rewrite history. They go, oh, youtube is massive now and this
is what it was going to be from the very start of youtube. I’m not trying to pick on youtube, any startup,
once their success has been achieved, everyone goes back and rewrites history, and makes
it look like it was preordained.>>And also then says thats the roadmap for
the future. So you invent a story of the past and you
project it forward and thats your road map.>>So Brant, when you use the word pivot,
are you saying that when you start a startup you pivot on something and then you expand
into a much broader scope? Is that the context here, or I’m not getting
this concept.>>Yeah, okay I’m introducing it a little
bit early, we talk about it a little bit more in a couple of slides, so when we get to that,
follow up with your question if I don’t get to it, okay? So basically heres the basic tenets of the
lean startup then. You don’t really know what the problem is
or the solution, you have good guesses as to what they are. Your business model is going to change, so
what you have to do is go through those changes fast enough until you find what works, and
you have to do that before you run out of money. So thats what the concept of the lean startup
is.>>So real quick, actually, Brant, real quick. What I like about these big ideas here, and
I really think they are big ideas, is that this was always a fundamental truth in sort
of the chaos of startup land, but the changes people always seemed to go through were driven
by panic and fear. Like, oh we tried to do pet food, online pet
food delivery, but its really not working, so what do we go to next? And the pivot, iteration, whatever you want
to call it, was going to happen at some point, we have incomplete information about what
the market wants, etc. etc. It was going to happen anyways, this is actually
bracing, in my mind, bracing the reality of how start ups actually work.>>So this may be an overly complicated slide
but this is real quickly, lean startups are basically about combining what is called agile
development with customer development. Agile development is an engineering term for
developing small amounts of code in a very short time and getting that out in front of
customers to validate and that people want it. Combined with customer development to test
your marketing. Its an integrated approach because people
out speaking to customers can bring that back to engineers. The engineers can build it and then you actually
have a product in front of customers and thats testing it and your solution team or your
problem team thats out there figuring out whether they got the right product nailed
with customers, they take that product out and so its a continuous loop on both the market
development side simultaneously with the product development side.>>Again, I keep wanting to juxtapose with,
and I don’t want to be a strawman, but previously right, people spent six months sitting in
a cave, building an app.>>Not even six months, two or three years.>>Right and then presenting it to a customer
like, oh, what do you think, and then wondering why they didn’t get traction.>>Right, so the old style, still being taught
in a lot of places, you write a 40 page business plan, put in your requisite hockey stick revenues,
right, then you go and present that to your investors, and if you get somebody that will
actually invest in you, you’ve essentially signed a contract that yeah, you will deliver
these revenue targets that you pulled out of the air. So then you got your investment money based
on this hockey stick, then you spend a year, two years, building the product, towards the
end of that process, you start hiring your sales and marketing people and you do this
big launch. Big marketing launch, get your product out
there, you maybe make a couple opportunistic sales, you maybe sell to the brother in law
of one of your board of directors, and you have this little bit of success and maybe
you hit those really super low first quarter targets, and then suddenly you see in the
second quarter its flatlining. In todays web world, we call this the techcrunch
bump. Right, you get your product out on techcrunch,
hit tens of thousands of visitors, and then as the month goes, not only does the number
of visitors dip, but the number you originally got are no longer using your web service,
so your retention is really low. So what lean startups tries to do is lets
flip that. Before doing your big launch, before spending
two or three years and all this money building a product you don’t know whether people want,
but you integrate that approach, you integrate the market and customer development with your
product development. So Patrick and I like to say these are not,
if you can get these philosophical principles in terms of lean startups and customer development
you are good to go. We are not advocating a step by step approach
or a very rigid methodology. So basically the philosophy here is question
your own assumptions. So everything you think you know about startups
are actually guesses. So you want to say what you think you know
as forcefully as you can because you believe in yourself and all the rest, and I agree
with that, believe in yourself but be skeptical about your ideas.>>And this is the big idea, this is Steve
Blank, the author of the Four Steps of the Epiphany, get out of the building. What he means to say is, I’ve got a great
idea. I want to sell cupcakes, and I’m going to
have these cool cakes and they are jalepeno flavored cupcakes, and they are going to be
amazing. Instead of me building the factory to make
my jalepeno flavored cupcakes, why don’t I go out and try to sell a few now.>>You’ve been watching the cupcake wars,
haven’t you?>>I actually hate cupcakes, thats why I kept
using it. And so, the point of this, why don’t I try
to do some validation before I go and scale. Right, it sounds deceptively simple, but if
it were that simple, if we had understood this 10 years ago, billions of dollars wouldn’t
have been wasted. You guys all remember WebVan? From the dot com boom. They scaled to build home delivery, online
ordering for groceries and they actually invalidated idea because people, at that time, didn’t
want to order groceries online. Right, so, get out of the building and actually
go and validate these ideas. And the last sort of step is iterate on these
ideas, right? So don’t just do it once. I go to Brant, I try to sell him some cupcakes,
and he says, no I don’t like the orange flavored ones, I like the cherry flavored ones, and
I’ll pay twice as much because I can sell them to my.>>I firmly believe that fruit and desert
should not be mixed.>>The point is that you want to iterate through
these things, iterate through cycles of these things. And this is actually, this get out of the
building, this is Steve Blanks short hand phrase for get out to your clients site and
figure out their reality. There are other sort of acronyms that say
the same thing. Nothing interesting happens in the office,
I’ve heard that before, people have thrown that around. And in the lean manufacturing, there is actually
a Japanese expression that means the same thing, get out and see what is happening in
the real world.>>So what does this mean in terms of market
assessments. So, traditionally theres talked about a top
down approach and a bottom up approach so we will talk about this real quickly. To me the first thing you want to ask yourself
is what is your, what is your objective you are trying to do with your market assessment. Is it because you are putting together one
of these 40 page business plans and you need to come up with your hockey stick? Are you trying to raise money so you need
to convince and investor how much money you are going to make? I would say that the first reason that you
should be doing a market assessment is to see whether you even want to build your startup. And you should think of it in terms of, in
the end, if nobody wants my product, how bum am I going to be that I spent six months,
a year, buidling the company. So the cupcakes top down approach.>>Right, so this is pretty typical. If you’ve guys have ever seen a pitch deck. Right, massive number. Nine billion dollars for cupcakes or for online
food ordering or for online dog food ordering. Whatever it is. This is pretty typical. Again, I’m kind of, what the word I’m looking
for.>>Absolutely no idea.>>Anyways, pretty typical. Normally Gartner or Forester or one of these
big research firms you can quote them. You can buy reports, the Gartner guys go out,
do a lot of research, then you can quote them, feels pretty good. I tend to be pretty skeptical about this. I think they can give you a pretty good ballpark
figure, whether its a massive market, or small, but how did those guys arrive at that, those
conclusions, may not be suitable for your startup.>>So these numbers can be useful when you
are demonstrating a big vision, and its a big vision inside a big market, right? So, if you are trying to raise money, investors
will want to see, what is sort of the dollar figure that represents the great wide world
that you are actually trying to tackle. But its also a dangerous number. It can be very self-delusional. The number of decks that I’ve seen where they’ve
had the massive number up there. I’m not sure its quite as much as a bazillion,
but then they will say, conservatively, we estimate that we will tackle 1% of that market. So 1% is a conservative number. But 1% of a bazillion, thats actually still
a pretty big number. So its easy to get into a game of self-delusion
there, and you actually haven’t demonstrated anything about being able to tackle that market. So, while I’m not going to say never do this,
I am going to say that you need to use that number wisely. And I don’t think there is an investor out
there that hasn’t seen deck after deck that has been told about their several billion
dollar market. So be wary of the top down approach. So then there is the bottoms up approach.>>So this is bottoms up. This is clearly how you back into an equally
large number. So here I chose red velvet Jalepeno coconut
cupcakes, they are 40 dollars a pop. In my market, I think I can address a million
people are going to buy, and I think they will buy 14 cupcakes a year. So x, y, z, thats a masssive market. Thats really pretty simple. Again, this is a really simple example, you
can do this much more sophisticated depending on what you are selling, what your product
is. I intentionally chose cupcakes to keep it
simple, I didn’t want to. If you are going to be running a freemium
business and you are going to be disrupting sales force, CRM stuff, its going to be a
different model, but essentially the model is the same. I took this from Dave McCLure’s Startup Viagra:
How to Pitch a VC, by the way. So if you are interested in building a pitch
deck for a VC, go see Dave’s stuff. You can either google Startup Viagra, or enter
that short little url there. Its not very complicated. I think we can all do simple multiplication
here and division.>>So the advantage to an approach like this
is that it actually exposes all your assumptions. The assumption on how much money you are going
to make per cupcake or per dozen. Wow, 42 dollars for one? Wow?>>That’s Newport Beach prices.>>So, an assumption would be the price. There may be even a line between here which
is, what is your reach, based on your marketing, how many eyeballs are even going to get on
your offer, and then there is a conversion number there, how many people are going to
buy out of those numbers. So you end up exposing a bunch of assumptions. And the reason investors like that is they
are going to take all your assumptions and they are going to slash them by 50 or 90%
and try to figure out if there is any valid business in there. Right, they are going to look at it best case
scenario by actually using your numbers, and then worst case scenario by slashing them
90% and trying to figure out how bad off you are by that point. So, we definitely support the bottom up approach,
not only because it exposes the assumptions, but it actually gives you an idea of what
you need to be working on, right? You can actually start segmenting your market. If you thinking about it from a bottoms up
approach, and basically, if you are going to get an investment or get any sort of financial
modeling, you are going to have to understand, who are going to be your customers, who are
going to be your early adopters, the people that are the first ones that want to try out
radical jalepeno based cupcakes, and how you are going to estimate whats the cost to reach
them, maybe there is a specific blog for jalepeno lovers, so you can start estimating how much
money its going to cost to reach those people, so it really is a financially based, bottoms
up approach to figuring out whats the reasonable amount of money its going to spend to get
to those people. So really what you want to get to is, heres
what your cost of acquisition is, and once they become addicted to these cupcakes, this
is my lifetime value, they are going to continue to buy, and there you have the basics of your
business model, your proposed, your guessed business model, and thats what the investor
wants to see. But like I said before, it gives you a test,
you can start testing those market segments, so we are saying, do customer development
to validate the segments and your other assumptions. And the customer development is you actually
go out and talk to these people. You can do surveys, you can do landing pages
online where you are measuring clicks through on adwords, and this is all just for testing,
right? Theres a bunch of online tools you can use,
AskYourTargetMarket.com, a bunch of ways available online now for you to start interacting with
your customers, but all of those, in my mind, need to be corroborated with individual interviews,
actually speaking with people to see if there is anyone passionate about this solution you
are bringing into the market. And it also helps you divide those segments,
what is the profile, or the demographic of this person, what does their social network
look like, who do they talk to, who influences them, thats kind of what you want to learn
about your different segments. So, your numbers are just guesses until you
validate your business model. Your market assessment is more accurate with
the more that you validate. And, guess what, most investments, these days,
do not come before proof. If you’ve got several startups under your
belt, had a couple of exits, then you will probably be able to get some money, based
on a good idea, if you’ve got the pitch together and the investors do believe its a good idea. But if you are a first time entrepreneur,
you are just not going to get any money based on an idea anymore. You got to start building you product, you
have to start proving your market, you have to start proving your business model.>>Any questions by the way? We are kind of going fast.>>The question is this, if you go back to
the root, or roots, entrepreneurs, the ones I know, are like software engineers, they
create this, create this mousetrap, but at least they know the markets tight. They don’t know how to sell, they don’t know
how to size the market, and then you throw in this, you know what, you throw in this
model thing, and it has to be a rigor model so you can check your assumptions or, so thats
where the disconnect is.>>Thats one of the reasons we love the lean
machine weekend we were talking about. Because we get teams of engineers that were
hoping they would get to stay inside the building hacking all day and we make them go outside
and talk to customers, so it really is. Its one of those things thats, engineers will
spend a lot of time to try and figure out, and actually invent tools so that they don’t
actually have to talk to a customer. So all of those tools I was telling you about,
usabilityTesting.com, just go there, and they are going to take care of all that customer
stuff for me and I’ll be good to go. So it is, its a hurdle to overcome. The fact is, engineers can now do a lot of
really good marketing without ever talking to a customer, they can, so it doesn’t have
to be this fluffy Madison Avenue marketing that engineers aren’t drawn to. It can be process oriented, similar to using
a scientific process, so that appeals to a lot of these engineers. You know, if you give up that side of the
business, if you give up the sales and marketing side, and you go to sort of an old school,
traditional sales and marketing, you are going to be spending a lot of money without seeing
results. So maybe some of those engineers have to suffer
that pain before they go, well next time I’m going to do it a little bit differently.>>This is embracing reality that we’ve all
heard. We’ve all heard the phrase, build a better
mousetrap and the world will beat a path to your door, this is what breaks the reality,
thats actually bullshit, right? We like solving problems, often people solve
problem, provide solutions, for problems that don’t exist is what we are getting out. So let me give you another example, Segway. You all remember Segway, when that first was
going to come out, it was going to change the shape of cities and urban landscapes,
no one ever bothered to check if people wanted to spend 3 grand for this dorky scooter thing. Five thousand top, right. Now they’ve actually pivoted into the security,
sort of mall cop, tourist business. But my understanding at the time was square
that it was aimed at the consumer, that it was going to replace the car. That was the PR and hype around it, thats
how they were positioning it. But guess what, people don’t want to drop
five k for that, some of them do, but the point is the technology at the time was awesome,
remember at the time, it was amazing, you stepped on one, it balanced perfectly, mind
blowing technology, doesn’t matter is what I’m getting at. You’ve got to get out of the building and
test these assumptions. You can build the best mousetrap ever if its
not really solving a problem.>>So the message is the engineer or programmer
has to just get out and do. And I work with print, right? That they are hiring the old school sales
guy, pay him 200 with bonuses, etc., have not worked, at least the guy I work with.>>Once you’ve figured out that stuff, once
you go, okay, I know exactly what I’m selling, I know how to reach my customers, I know how
much it costs to acquire them, I know what kind of messaging they respond to, I know
their substitutes, then you go hire that silver tongued, 6’5″ sales guy who is good on the
golf course and he just goes and executes. That when you hire that guy.>>And there actually are, in the B to B world,
you can hire what we call the renaissance sales guy, and thats a sales guy who actually
does understand how to go out and learn the market, so its not like we throw all sales
and marketing people under the bus. I’ve been in sales and marketing for a long
time and I guess its the differentiation between old school and new school. The old school just grabs from their toolkit
and goes and executes on the x, y, and z that they’ve always done before. And thats sort of a dangerous way to go if
no one has figured out what the right methods are and you can spend a lot of money and burn
through your resources doing that. So there are sales people, there are marketing
people who you can hire that will help you figure out what they roadmap should be. What the sales and marketing roadmap should
be, and then you turn that over to your turn key marketers and your turn key sales people. Now, it doesn’t get away from the need though,
from the founders, that hold the core assumptions of their business, that they are the ones
that need to go to talk to customers to validate those core assumptions. Is there really a problem that they are trying
to solve. Is there the solution that you have in your
mind going to solve that problem or is it going to likely to solve that problem or does
it sound appealing to the customer that has that problem. Theres really no way around understanding,
honing in on the market signal, understanding that pain. So in one of these lean machine events we
did in San Francisco a couple weeks ago, a team was building a photo sharing service
and we were like, ugh, another photo sharing, I mean, we need another photo sharing service? But what the actually wanted to do was they
were going to use face recognition technology, I guess look at past photos these people had
shared, and figure out what are the good photos. What are the high quality photos of a family,
or whatever pictures you are taking. And they thought the pros might like this
market because they are taking thousands and thousands of pictures, so could you actually
develop a technology that could pick the good pictures out of that lot. The pros hated the idea. They actually love the process of actually
going through and selecting those photographs. What they found though were moms were eager
for that. They felt like, socially, they felt like bad
moms if they could not produce good pictures of their kids. So one of the guys that was presenting this
idea at the end, while we were doing the final was saying when he felt the emotion from this
woman about how involved they needed to be in choosing their pictures, and if she could
have help with that and then she could have these great photographs, and that it was really
important to her and she was emotional with this guy when they were talking and that was
the point in this customer development where we had sort of dove in deep enough to find
the emotional connection. Thats the pain you are trying to uncover. In the B to B world, its usually money driven. Can you increase my RoI, can you expand my
market segments. A lot of these things are measurable. But in the BRC world, its often an emotional
thing you are trying to connect with, and thats what you are trying to do with customer
development, try to dig in deep enough to understand that need or that pain or that
passion actually exists.>>And really, real quick, sort of riffing
off what Brant just said about, I want to go back to sales and marketing, right. That theres a time in this customer development
model, this Kool Aid that Brant and I obviously drink from. There is a time where the founders are actually
learning, and theres a time for executing. And I actually have a friend up in LA, he’s
at a pretty prominent, well funded startup, and I spoke to him a few weeks ago and I asked
him how sales are going. He said, oh, our sales guy is awesome, we
just closed like 10 big deals, high fives all around, rock and roll, catch is coming
in. A week later I talked to him, how is it going,
and he said, I just figured something out. We are still in this learning phase. Those 10 deals are all different customers,
meaning different types of customers. We are doing something all slightly different,
and we don’t have anything that is scalable or repeatable. The sales guy was doing what the sales guy
is paid to do. Go execute, close these guys, the guy is a
great salesman, right. So the sales guy, my friend, and the CEO had
to have a meeting and say, hey, sales guy, we got to put you on a leash because we don’t
know what you are selling. This guy is closing deals, but what they are
actually searching for is a repeatable, scalable model. See what I’m saying? This is not against sales and marketing, there
is a time for execution, there is a time for learning. Its context dependent, and I think thats a
nuance a lot of people miss about customer development.>>And that happens all the time.>>Absolutely.>>Those guys go to the CEO who say, can you
do this, and the guy say, sure I can do it. And now its a big headache for the software
guys who have to change the software.>>How do you find that sweet spot between
the soft launch, the beta site testing, the feedback, fine tuning it, to locking it down,
doing the formal launch, scaling up.>>Yeah, thats a great question, and its one
of the most difficult ones to answer.>>I was afraid you’d say that. Go ahead.>>I’m going to give you an irritatingly philosophical
answer about this, which, I know you are looking for actual stuff, and I wish I had the exact,
I could get right into your brain with the right answer, assuming I know it, which I
don’t. There is this conflict called product market
fit, don’t know if anyone has heard of it. Its when you’ve found the solution that nails
the problem, you know the price that people responded to, you know the messaging, you
know the cost to acquire a customer, so theoretically, the long term value of that is higher, so
you go, now, lets go get some money, and actually we built a machine where you put in a dollar,
and it spits out three. Thats when you scale, theoretically. And this is all a philosophical understanding
of this, and this is kind of what people talk about. This is actually popularized by Mark Adreeson,
don’t know if you guys, pretty famous entrepreneur in Silicon Valley. He actually wrote a blogpost about this a
few years go and explored these ideas.>>So its nebulous, right? The way I sort of describe it is you know
if you are there when you wake up and have a whole new set of problems. So before you are there, your problems are,
where are my needs coming from, how can I optimize my conversion funnel, we are not
acquiring enough people to our website, how do I build that, how do I convert them, now
they are in my system, they are not retaining sales, I sold 10 but to 10 different people. And then when you’ve reached it, suddenly
your set of problems are, I can’t fix bugs fast enough, I don’t have enough customer
support, my servers are crashing. So it really is when your customer is leading
you instead of you are leading your customer.>>Yeah, when your demand is overwhelming
your capacity.>>And there is different sort of analogs
as well.>>And that is what you call Product-Market-Fit
or Product-Market-Misfit.>>No, thats product-market-fit, if its misfit,
then you don’t have anyone knocking on your door.>>So let me give you an example. These are all problems you can solve with
money. This is the kind of problem you see, right,
I need more server capacity, its going to cost me 10 million dollars a year. The reason why is because money is flowing
into my pocket, these are great terms, money solves these problems.>>You are on a shared server before, and
after you are on a dedicated server, right? And you have this painful point where your
stuff is crashing and you have to go out and do other things.>>But alternatively, following on his comment,
not to pivot too soon from the valley of death.>>Well thats true, again, one of the things
we actually talk about. I’ll just hop around some of these slides. Theres nothing deterministic about lean startups
and this methodology. Right, its not a paint by numbers approach,
and this doesn’t take anything away from the art of entrepreneurship. And the question of when you keep busting
down that door because you really think there is something there, or you think, no, its
time to pivot, thats a founders decision, right? There is no methodology, right. And you asked about pivot before and the concept
of pivot is really, your business model, you have several aspects of your business model,
you are trying it out, something doesn’t work, but you have learned something, so you keep
one foot planted down on what you’ve learned, and you are pivoting the other aspects of
your business model, and maybe you pivot multiple times, and maybe the second pivots is where
you first had your foot down. And thats different, in my mind, from iterating. Iterating is when you are testing a particular
idea, it could be positioning, messaging, landing pages, product features, and those
are just smaller changes you are making in trying to find whats the right thing and what
works versus a business model change where the pivot comes in.>>Really quick also, anecdotally, a story
about product-market-fit, you also see sort of the negative, when twitter goes down people
go nuts. People complain on the blogs, the blog sphere
blows up, when twitter goes down, its a big deal. A friend of mine, he’s got a startup, his
site went down, he didn’t know about it for 8 hours. Not one of his customers, no one complained
about it, pretty clear, he had nowhere near a product-market-fit. They even joked about this, there was no pain. Oh, another friend of mine, a different guy,
their site went down for 5 minutes. They had the CEOs of five of their customers
call up their CEO in 5 minutes. So it kind of gives you some ways to navigate
around this sort of nebulous concept.>>And in terms of actually metrology and
process, I have several clients that are sort of mired in that area. Its probably where most startups sort of die,
is searching for that product-market-fit, and maybe it doesn’t ever happen, and thats
when you pivot. But in terms of process, it is very customer
driven. Its not that you doing what the customer says,
which is actually this slide. So customer development is not feature mongering,
its not what the customer wants and then go and building that, which is another trap that
entrepreneurs fall into, you want to use whats called the five whys, which, I think, is an
agile approach to solving engineering problems inside you company. When a customer says that they want something,
you need to ask them why, and you need to keep asking them why until you understand
why it is that they are asking for, what is the pain its actually solving. They don’t necessarily know whats the best
way to solve it, they are going to give you a bunch of ideas, but not until you understand
what they are trying to solve can you come up with a solution. What you are doing during this phase while
you are trying to reach product-market-fit is iterating quickly on your product. You are constantly talking to customers to
try and hone in on what they are trying to solve and what it is they need, and you are
measuring their passion on the product. There are a couple ways to measure passion. Shawn Ellis sort of invented the Survey.io
where it asks the question, if this product when away, how disappointed would you be and
people throw out their numbers, 40%, 50%, if you can get that number of people that
say they would be very disappointed if your product was no longer available, then that
is an indication of passion, and you are trying to grow that user passion. You are trying to grow the fervor of that
passion and you are trying to grow the number of people who actually have that passion,
and that is really what drives you to product-market-fit. If you are increasing the passion, the number
of people who are passionate, its a good market signal that you are on to something so you
are constantly in conversations with your customers. And really, in this world of software, internet
and iPhone apps and all the rest. Your IP, there really is no IP anymore. Its so easy to copy this stuff. You are not going to be able to get patents
and protect your internet idea most likely. Even if you got the patents, your ability
to litigate is very small. Your differentiation in your winning combination
is your relationship with your customers. If you are developing passion in your customers,
thats whats going to keep them your customers. Your interaction with them and the passion
you create is your differentiator. And so, establishing those relationships early
on is whats going to tend you towards that product-market-fit.>>Why don’t we go to the slide so folks can
follow and checkout. So, the, Steve Blank, he wrote the four steps
of the epiphany, here is his twitter handle right there, if you are at all interested
in what we’ve been talking about. He’s sort of the progenitor of all this. I recommend reading his book, the four steps
of the epiphany, immediately. Its had a dramatic effect on the way I view
startups and startup life. One of his students is this guy named Eric
Ries. He took Steves idea of customer development
and melded it with agile development and this is what he called lean startups. He’s got a great blog called startuplessonslearned. Sean Ellis, he’s a guy that Brant mentioned,
probably the sort of premier startup marketer. He’s actually doing his own startup now, but
his blog is pure gold for startup marketing. Headen Shah is an entrepreneur up in Silicon
Valley. Very data driven guy, also part of the sort
of the lean startup crew, as it were. His company is called Kiss Metrics. And then Rich Collins runs a google group,
a lean startup google group. If you just google that you’ll find that if
you are interested, sort of the things that Brant and I are talking about.>>We’ll make this deck available to you. So you’ll be able to get access to these. Dave McLure should probably be up there as
well. 500 hats.>>500 hats, 500 startup should be up there
as well.>>And he’s got some great, his pirate slide,
his pirate metrics, if you are marketing online, is really important. He also writes about changes in the investment
world which I think are right on.>>So I guess the last thing, so, to pitch
Brant and myself. We wrote a book called The Entrepreneurs Guide
to Customer Development. Its a cheat sheet to Steve’s book. Steve’s book is amazing, you should go out
and buy it, but its very thick, its very dense and it really makes you earn the knowledge
in it. We did sort of a cliff notes version of it. You can get it as a pdf at CustDev.com, you
can get it as a paperback from amazon or Kindle, and if you use the discount code there, you
can get 20% of if you buy as a PDF.>>And then our contact info here. We like to discuss the book or anything else
that you like to discuss.>>So thank you for having us, if you have
any questions, we can talk about, throw them at us.>>I have a question. You mainly mentioned that the customer is
the major portion you should consider when you are developing products. But customers is only part of the stakeholder. I mean vendor is stakeholder, the investor
is a stakeholder. I will give you an example. You know when 3M invented the post it note,
they didn’t ask anyone, do you need a sticky note? No one would have a clue, I didn’t need it. But I can’t live without it, you see. Same thing with a post it note. So I think we should also look at other stakeholders,
you know, and not only the end user as the stakeholder.>>Right, its a good point. So it all depends on your business, your business
model. We actually have a section in the book where
we do what I call the customer development white board. And its as if you were in a room with your
management team and you draw out your ecosystem. What is your ecosystem, how do we envision
this product getting to market. What is the value prop for each one of those
stakeholders. Which ones are mission critical, so which
ones are ones you should focus on first, what are your assumptions around there, and it
lines up what things you should do customer development to test. So it all depends. We tend to talk a little bit generically about
customer and product, but there are all sorts of other alternative business models out there
that make those ecosystems complex. So you bring one up, theres interior, marketplaces
where you’ve got, it only works when all the entities are at the website. Theres network affect businesses. So I think there is a way to use these methodologies
for any of those business models, but you have to be creative and you have to figure
out who you need to talk to in order to validate part of your business model, so what are the
riskiest elements of your business model.>>Back to your 3M post it example, its a
great example, I’m glad you brought it up. So what Brant and I are saying isn’t to go
out and ask, hey, do you want, tell me what want, and it will come fully formed out of
the customers mouth. Oh, I want a little square thing, and I want
it to be bright yellow, and I want a sticky side and I want to be able to tear them off
and put them anywhere. Right, often, people don’t think that way,
but as an entrepreneur you have a vision. I’m guessing the 3M story, I know its out
in the news how they came about it. I’m guessing though, what they probably did,
he probably observed how people were taking notes. So no one actually verbalized, this is what
I want, and I’m going to throw it up on my white board. But he probably observed. Or staples for example, they say the guys
actually went out and look at how much office supplies people were purchasing at companies. And they’d ask for example, an admin or secretary
and say, how much do you spend a month? Oh a couple hundred. And they actually went out and looked through
the store room and said, this is actually a mismatch of what customers are saying and
what customers are actual doing. So you can still apply the same principles
to that. I just want to be clear, no one who understands
customer development think the customer is going to spit out exactly what they want. They can talk about their problems and their
pains and passions. And as the entrepreneur you are behold to
sort of suss that out and create a solution. Any other questions?>>Yeah, investors almost always want IP,
but you just mentioned that its almost impossible to get and hold onto it, so how does that?>>Thats a good question. I think Brant was more talking about the B
to C play on the internet. I think if you are doing medical devices its
a radically different world. There is a lot of medical devices down here
in San Diego and Orange County. I think you could probably do some heavy IP
and get the patent attorneys involved and set up money and protect yourself, etc. etc.>>I guess if you can’t get it then what do
you tell investors.>>Well I try to concentrate on differentiation. I think that the investors are a little bit
old school in Southern California so they ask for IP and your mentors ask for IP and
all these people ask for IP, and so I like to stir things up by saying in front of them,
bah, IP is old story, it doesn’t work anymore. I’ll actually turn it around and say, okay,
well say I got this IP for a software product, or an internet product and a competitor comes
along and copies me, how am I going to, what does that IP do for me? Whats the next step?>>Hire a lawyer.>>Litigation.>>Right you are going to hire a lawyer and
he’s going to what. Are you going to go sue this company? I mean its not going to be solved in court,
it just isn’t. And especially in the software and internet
world, you can see what someone is doing and do it differently, very easily, theres just
no protection there. The only people that the IP is protecting
now is the big businesses that have the huge law firms, or the legal wherewithal to protect
their patents. So if you are doing hardware, you’ve probably
got something to protect. But I’m going to say, if you are doing software,
not likely. If you are inventing new algorithms, or AI,
or really technical software, then maybe you got something to protect there. But, even in the data warehousing world there
is these software plays where people are using all of this sophisticated math to write data
and extract data faster. So now there are just these competing algorithms
and they are all protected, and are they going to fight each other? These days you just really can’t solve that
stuff in court.>>I ran into the same situation that he is
pointing out. You’re right, its totally not legal, and I
myself was involved. Cost us so much money and you don’t win the
battle anyways. Heres the problem though. You are presenting to investors with money
and you say, oh, there is no IP protection, people could tweak a little bit and even if
you have IP you can’t sue them, you know what, its kind of pours the cold water on the investor.>>Go to a different investor.>>They say, oh I don’t think I want to pour
a couple million in this.>>Go to a different investor. Go to the bay area, go to some place that
they actually understand that. The thing is, the investor is reasonably trying
to mitigate their risk. So if you could have a rational discussion
with them that me spending 10, 20 thousand dollars or whatever it is on IP does not mitigate
any of their risk, thats sort of the rational discussion to have. But if they don’t get that, if they want you
to go get IP even if you know that its not going to protect you, then I don’t think thats
the right investor for you.>>Right, just like Brant said, its the quality,
the quality of the investor and what they bring to the table, and again the context. Like biotech, medical devices, radically different
world, and I have no experience, but radically different world with what Brant and I experience
and talk about. So, the, in terms of. Actually, I pitched a VC once with no IP,
and it was clearly no IP. And its kind of a safe harbor, oh, whats your
IP strategy, and makes you kind of crinkle their eyes. Oh, thats what you got for me? Bye. Its the, thats actually what I like about
customer development. If you do the customer development process,
you learn about your customers, your clients, you know how they like purchasing, why they
are purchasing, you can go toe to toe with a VC about your company and feel pretty confident
about it. You can go, yeah, I sold ten of these to these
guys, I know a lot about it, often, an investor will go, you should do this and this and this. Because they saw it in the news somewhere.>>Another thing, really quickly, is to flip
it onto intellectual capital, instead of intellectual property. So why is it that your domain expertise, or
why is it that your intimate knowledge of the customer is going to protect you rather
than, the lawyers. So think intellectual capital instead of property.>>No easy answers of course. Any other questions, anyone else?>>Lets thank our speakers everyone. [indecipherable]>>The next program will be one month from
now, March 3rd, it will be the elevator pitch and Chris Van Dusen will the speaker. [indecipherable]

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