Customer Development

Excerpt from Jonathan Siegel’s Book

The following is an excerpt from Jonathan Siegel’s (my college roommate at UCSB) new book, The San Francisco Fallacy:

By the age of thirty, I was firmly established—in my image of myself—as an ideas man, an innovator. I already had fifteen years of execution of my own startup ideas behind me.

I had brought product ideas to collaborators, to investors, and even to market. Even though all had ultimately failed, I had been at least partly validated by the reactions of those collaborators and investors.

They were great ideas, but other things were wrong: the market wasn’t ready; the team or investors lost confidence; I managed them badly. But I never doubted that one of my ideas would break through someday.

It didn’t work out like that. Instead, when I did finally have a success, it wasn’t with my own idea. In fact, I didn’t even like the idea.

The Idea Fallacy afflicts not just the tech sector, but the wider culture. The Idea Fallacy is the deep-rooted belief that what really counts is the idea, not the implementation. There’s nothing wrong with a good idea—but an idea without implementation is largely worthless. Good ideas are far less rare than we think—what’s really scarce is the ability to execute.


How I Finally Succeeded—With Someone Else’s Idea

Having wound down BillASAP, I was left with a loyal and talented team and a burning desire to pursue a new product before the communal energy of the group dissipated.

Then, as we were racking our brains for our “next big thing”, I bumped into Kevin Milden in the supermarket in Santa Barbara.

Back in 2005, Kevin had helped a small team of developers position a document-sharing wiki as the “Web Word Processor.” This became Writely; after being bought by Google, it became Google Docs. He had that same touch that Blinksale had displayed: an intuitive sense of simplicity and minimalism. I told him of our recent catastrophe. 

“We need a new project,” I said. “Quickly.”

“What about e-commerce?” he said.

“Too boring,” I said. 

Online, there was a rush to bring every retailer onto the web. There was an endless succession of sites being built—one by one—for companies trying to play catch up and sell their goods online. Unfortunately, to me – as a techie – it was about the most boring software I could envision writing.

“So make it so you never have to write another online store ever again,” Kevin said. “Make a shopping cart that you can take with you from website to website.”

From video games to sports software to ideas born in my own eureka moments, I was used to working on projects to which I felt a personal attachment. This idea had no such attraction.

But I could see that the technological challenge could be interesting, and I had a team on hold. I needed an idea. Any idea.

We started to thrash it out that night in the shed. We decided to work in Ruby on Rails, the same technology framework that Blinksale had used.

We worked all night. By morning, we had a heap of code and a draft business presentation. I called Kevin and told him to come round.

“Holy shit,” he said, “you already built it!”

And we had. It was crude and ungainly, but it was there: a personalized shopping cart for the web. Kevin came on board officially, and we worked hell for leather to get it to market.

For six weeks, I slept two hours a night; most of the rest was spent in the shed, barring a few hours a day with my family. By the end of that period, we were ready to test it. We called it RightCart.

Within weeks, it had been written up on TechCrunch and was installed on tens of thousands of sites. Individual carts had had millions of views.

And so, finally—after multiple failures—I had a success. And then the VCs came calling.
RightCart’s ethos of making selling and shopping easier—of democratizing e-commerce—was in tune with the zeitgeist.

But the VCs wanted me to tell a more dramatic story—one of revolutionary proportions. The VCs wanted me to talk of “social web e-commerce.” In this brave new world, they said, every blogger would be a business. This, they said, would make RightCart a multimillion company.

I didn’t believe them. I had wanted to improve the online shopping experience. I had no interest in creating and running a social media widget company. 

So instead of courting the VCs, I did a tour of company boardrooms. I visited Visa, Amazon, Buy.com, Adbrite, and others. I was touting my company, but I was also using it to get inside those rooms and to gain contacts and insights into how the market leaders ran their businesses.

With the VCs whispering promises of multimillions in my ear, I took an offer of $250,000 from Buy.com. 

It had cost me $120,000 and six months to develop RightCart. (Although I could argue that it had taken two years, given that the PostASAP and BillASAP failures were effectively part of the “development” process.) To the market, and my startup peers, $250,000 was not a dramatic exit.

Modest though this success may have been, it was efficient, and it was exhilarating. It gave me some financial freedom to take risks with new products, and it gave me the confidence to back myself in doing so.

It was, finally, a validation from the market (not merely from investors). It was also, of course, a validation of Kevin Milden’s idea. But the fact that the original idea was not mine in no way lessened my sense of achievement.

Had Kevin wanted to, he could have developed the product himself. He was generous in sharing the idea, but he also knew that he wasn’t going to develop it.

A less mature entrepreneur would have clutched that idea selfishly to himself, jealous of the hypothetical success anybody else might have with it. But Kevin understood that the tech ecosystem relies on cooperation and collaboration. Good ideas well executed make everybody’s lives better. Good ideas kept secret add nothing to the world.

The Idea Fallacy Revisited

During the dot-com boom, in 2001, it seemed like anyone with a half-baked idea for a dot-com had money thrown at them.

This was the epitome of the Idea Fallacy: “It’s all about the idea,” the VCs screamed and the media chorused; the would-be founders soaked it up and were duly soaked in cash, no matter that many of them lacked so badly in the ability to execute.

Websites for selling pet supplies (pets.com) and groceries (Webvan) attracted hundreds of millions of dollars in venture capital almost overnight and then went spectacularly bust because their models were chronically unprofitable. Webvan, for example, had raised $800 million and taken thirty-year leases on warehouses, only to find that its core business of grocery deliveries didn’t work in the market.

Then came the backlash: following the bursting of the dot-com bubble, the market swung back to place new emphasis on execution. This helped foster the excesses of the Tech Fallacy, where investors encouraged techies to play to their instinctive bias and focus on the tech to the exclusion of all else.

These things move in cycles. Still, the Idea Fallacy remains pervasive. That’s because it is at the heart of contemporary popular culture, not merely the tech sector.

Every time someone looks at a work of art and says, “I could have done that if I’d thought of it,” that’s the Idea Fallacy at work. Every time somebody reads about Mark Zuckerberg or Jack Dorsey or Larry Page or Sergey Brin and thinks, “Lucky bastard. I wish I’d thought of that,” that’s the Idea Fallacy again.

The Idea Fallacy is the belief that inspiration, not perspiration, is the fount of creative success, whether in the arts, the creative industries, or in startups. It is the belief that the root of success lies in the idea rather than the execution—the belief that ideas have substantial intrinsic value—that they are the key item in the startup value chain.

Not only was RightCart not my idea, it wasn’t even a new idea at all. Shopping carts were everywhere. There were even preexisting shopping carts that would follow you around the web: Yahoo Stores, Shopify, and others.

What distinguished us was near-perfect execution. We chose the right technology. We had a beautiful design. We came to market fast—with what I would come to think of as a “minimum viable product” (which I’ll talk more about in Fallacy Nine). We invested barely anything in the product (in time or money) till we had market feedback. We had a good PR story. We took our exit at our very first opportunity.

Rarely is an idea original. Society’s focus on the “Big Idea” is misplaced. As Jim Collins shows in Great by Choice, many of our business icons build their success on the back of other people’s ideas: it wasn’t the McDonald brothers who built McDonald’s into an empire, it was Ray Kroc who saw the seed of greater success in their operation and bought it from them.

Southwest Airlines copied its model directly from Pacific Southwest Airlines. Ryanair, Europe’s largest airline – named after one of its founders, Tony Ryan – was a loss-making tiny Irish airline until Michael O’Leary applied the Southwest model and duly revolutionized the European airline industry.

Facebook, Google, Apple, Uber, Airbnb, Zappos—none of them were built on original ideas. Competitors were doing the same thing at the same time, sometimes even before them. But they executed better.

The Idea Fallacy warns us not to be seduced by the brilliance of our ideas—an idea without execution is worthless. But it also tells us not to be intimidated by the fact that others may already be executing the same idea.

This is counterintuitive to many first-time founders. Let’s say you have what you think is a brilliant business idea and you want to see if it’s viable. Which of these situations would you prefer to find?

a) There are existing businesses with the same idea that are thriving.
b) There are existing businesses with the same idea that are struggling.
c) There are no businesses with that idea.

First-time founders always answer (c). For me, the answer is always (a).

One of the first challenges a startup faces is to prove that there is a market for its product. The existence of thriving competitors proves that there is a market. After that, it’s all about execution: if you execute better than the competitors, you will win market share.

If, instead, there are competitors but they are struggling, that may be because they were seduced by their idea and failed to realize that there were intrinsic obstacles to executing it. It may mean the market is inadequate.

If there are no businesses with that idea, then perhaps there is simply no market for it—no matter how brilliant you think it is.

I face this as an investor all the time. Give me nine founders with amazing ideas but minimal execution abilities and one founder with proven execution ability but a bland and predictable idea, and I’ll go for the latter every time.

That was an excerpt from Jonathan Siegel’s (my college roommate at UCSB) new book, The San Francisco Fallacy.

Go and get it, you’ll love it.

A Note about Seth Roberts

Seth Roberts has unexpectedly passed away. Others who knew him more intimately than I did, have already penned, quite eloquently, why he will be missed.  See John, Tucker, Ryan, and Richard.

I only want to add, that in our emails and Skype chats and our occasional meeting in meat-space, what I admired most about Seth was his ability to explore, defend and test interesting, and often unpopular ideas (and even people) – the hallmark of a bonafide truth-seeker.

 

The Engineer’s Conceit

In tech startups, The Engineer’s Conceit is thinking that:

a) you know what needs to be built

b) you create value by rolling up your proverbial sleeves and coding it yourself

Need a CMS? I’ll code it myself. Screw WordPress, Drupal, Joomla or any of thousands of CMS already built with massive developer communities.

Need an ad network? I’ll code it myself. Consider taking an off-the-shelf open-source version to test it?  Nah. That doesn’t create value.

Need a data-warehouse?  I’ll code the best fucking data-warehouse the startup community has ever seen — even though my startup sells Brony t-shirts through PayPal.

Until your startup has significant momentum and traction, you usually don’t know what needs to be built, you shouldn’t be building it and you probably aren’t creating value by coding — and The Engineer’s Conceit shouldn’t have you destroying value by coding commodity stuff that can be bought — get your self-actualization elsewhere.

A quick test to see if you or someone you know has fallen prey to the The Engineer’s Conceit is if they have built something that someone else could have installed in 20 mins — and has nothing to do with their core business.

Engineers, don’t fret — marketing folks have similar hang-ups about The Marketer’s Conceit.

The Marketer’s Conceit

In tech startups, The Marketer’s Conceit is thinking that:

a) you only have one chance to ‘make a good first impression’

b) your ‘brand’ matters (usually conflated with your logo)

Until your startup has significant momentum and traction, your brand doesn’t matter — and The Marketer’s Conceit shouldn’t keep you from aggressive experimentation.

A quick test to see if a ‘brand matters’ is to imagine the business in question shutting down operations permanently and then asking yourself, “Would anyone buy that company just for the brand?”

The answer for organizations like Coca-Cola and Harley-Davidson is “Of course, someone would.”

For the vast majority of tech startups, the answer is “No way”.

Marketers, most of the engineers you know have the same hang-up, just other side of the same coin with The Engineer’s Conceit.

 

Because the current criticism of lean startup and customer development is, for the most part, so markedly atrocious, so lacking concrete insight and usually amounts to no more than an annoying child playing with a noisy cap gun loaded with sour grapes and Freudian projection; I will happily provide the critics with some real, live ammunition with which they might be able to arm themselves.

The following are meant to be constructive critical observations of various facets of lean startup and customer development. I have provided a few brief thoughts about each one, albeit each one probably merits multiple blog posts.

In no particular order and surely not exhaustive:

PIVOT, PERSEVERE OR PORTFOLIO: Lean Startup may be optimized for investors, not entrepreneurs.

The startup then becomes nothing more than an option for a Jane McVentureCapitalist, who has access to data and information rights which inform her future investments, the ones she actually cares about. Even assuming the VC is not malicious, this could engender back-seat driving behavior.

NATURAL LIMITATIONS ON HYPOTHESIS TESTING: Some environments are too complex and too chaotic for meaningful hypotheses to be formed and tested.

Hypothesis testing is appropriate for a complex system where the decision-making process is: Probe, Sense, Respond. But in a chaotic system, the decision-making process is Act (quickly), Sense, and Respond to stabilize the situation.

If this seems familiar, then you likely know of David Snowden’s Cynefin framework.

Also, if you really wanted to pedantically quibble, one might be able to make the case that Talebian stochastic tinkering/bricolage is fundamentally different than Lean Startup trial-and-error hypothesis testing. Or not.  (See note 116 for further background.)

LEAN STARTUP ITSELF IS THE RESISTANCE: Coming up with perfect experiments is the perfect excuse not to take action.

If you are unfamiliar with The Resistance, buy The War of Art immediately.

PEOPLE VS PROCESS: Lean startup is just another battle in the never-ending People vs Process war.

Moreover, Lean Startup enthusiasts miss the point that fighting over People vs Process is mostly sand-in-your-eyes.

STARTUP CULT-BUILDING IS NEXT TO IMPOSSIBLE WITH LEAN STARTUP: Hard to get people fired up to fight in the startup trenches when upon a pivot, you decide that this isn’t a war to fight for.

Synching a romantic and adventurous raison d’être-cum-vision (“We’re gonna change the world or die trying!”) that motivates foot soldiers and investors with boring metrics is not trivial, perhaps harder with Lean Startup.

You are warned: all of the above are dialetheia, at some level, both simultaneously true and false. Also, most of the above are not exclusive to Lean Startup.

Critics, consider yourselves armed – so fire away, try not to shoot yourself in the process.

How Lean Startup helped a Skateboard Company

An entrepreneur named Nick Jones recently reached out to me after reading The Entrepreneur’s Guide to Customer Development. Nick is the founder of Lavish Longboards.

“Skateboards?”, you might be asking yourself? Yes, I might answer you, “skateboards”.

You might then ask, “But don’t Lean Startup and Customer Development only pertain to technology startups?”

While I could outline why I have a passion for applying Lean Startup thinking to all sorts of domains outside of technology startups — I thought Nick’s own words speak volumes.

(Nick has allowed me to share our conversation over Facebook, which I have annotated slightly.)

Nick Jones:
Hey Patrick–Thanks for putting the Entrepreneurs Guide to Customer Development out there! It’s helped me with both longboard customers, and growing a user base for my skate-app! Looking forward to your next book!

Patrick Vlaskovits:
awesome. great to hear. would love any specific stories about how it helped.

Nick Jones:
It helped me with the boards by pushing us to define our actual target customer, and getting a little more precise with our product-market fit.

We were under the assumption that our eco-friendly board was a “one size fits all” product, which was complete BS. We were using google/facebook ads and targeting everyone from teenagers, to age 40-50 athletic/outdoor men.

[This is the default belief upon which many entrepreneurs first operate.

Who wants my product? Everyone.  WRONG! 

With The Lean Entrepreneur we hope to stamp this out once and forever.]

After 18 months of basically shooting for every possible skate demographic under the sun, breaking even, and marketing to skate shops nonstop, we decided to drill down and only market to two key groups.

One was the new entrants to the sport, the other was ppl who liked #Longboarding or #Skateboarding, and #Recycling on facebook. So we hit those two groups hard with ads, and sales grew by 2.5x in a 2 month period.

[As Brant Cooper often notes, think ‘small’ to get big.]

Of course we realized that these were our 2 biggest segments based on returns from our previous ad spends, but we were skeptical about ONLY marketing to them. We haven’t looked back since, now we’re hitting them hard, as well as only marketing to small handmade/funky/quirky retail shops.

[A product and segment are a dyad. Like two puzzle pieces, they have to fit without being forced.]

Stings a little bit to not be killing it with skate shops, but having a high return with the quirky shops helps ease the pain. We estimate that 70% of our customer’s first board is a Lavish one, so moving forward we’re slowly rolling out more advanced models for the riders looking for a more intense experience (downhill/freestyle).

[This shows strong understanding of their segment.]

Whenever we design a concept board, we email just 10 cruiser-customers to hear their response on it, usually around 4 are interested and willing to pre-order. So I guess my major takeaway would be committing to segments, and not thinking our board is a one size fits all type product.

[Sounds simple, right? Certainly simple, but not easy. Kudos to Nick for getting this far. The future of Lavish Skateboards is a bright one.]

Brant Cooper’s and my next book, The Lean Entrepreneur takes Lean Startup to the mainstream. Expect more stories about how a Lean Startup approach moves the needle in businesses big and small.

PS You should order The Startup Pack so you can get video tutorials on how to segment your market properly.

 

Apple Maps Debacle and Minimum Viable Products

I am taking a quick creative break from editing The Lean Entrepreneur, and as I poke my head into my Twitter stream, I invariably come across tweets drawing an equivalency between the Apple Maps debacle and the concept of Minimum Viable Products.

This is a mistake, one that demonstrates misunderstanding of the term.

A Minimum Viable Product is a triad.  It is composed of:

  • The hypothesis/objective you are trying to learn
  • from the target market segment you are trying to learn about
  • and the form it takes to achieve that learning
These three have to align to be useful.  Otherwise, you are simply “throwing shit against the wall.”

 

It cannot be belabored:  the purpose is to learn some unknown specific thing from some specific group. This is because you have no reliable data about your objective, hence, you are creating experiments to “manufacture” the relevant data.

 

If you do have good data about the triad I listed above, then you shouldn’t be building MVPs. You should be building stuff that your market segments demands.

 

It should be clear that Apple has petabytes of data about how, why and who used Google Maps on the iPhone.

 

Pulling a good product for strategic reasons, and substituting it with a painfully, substandard product does not a  Minimum Viable Product make.  This is simply poor and sloppy execution of sustaining innovation.  Tim Cook has admitted as much, while Apple apologists have been providing covering fire with their convoluted “Apple is playing 17 dimensional chess on all of us and we cannot begin to comprehend their brilliant strategy” arguments.

 

Yeah, right. Meanwhile, people, like me, who like Apple products, are’t super-thrilled about using a device that become less useful, in my case, overnight.    Again, that is not an MVP, so don’t confused the two.

 

Here’s hoping my iPhone regains some its recently lost utility very quickly.

 

A Bit About The Lean Entrepreneur

TL;DR: Brant Cooper & I have a new book coming soon. Go buy The Lean Entrepreneur AppSumo Bundle while you can. It is 96% off, has a bunch of apps + pre-order of The Lean Entrepreneur.

 

Lean Entrepreneurs Surf The Wave

Surf The Wave Art by @FAKEGRIMLOCK for The LeanEntrepreneur.co

 

It has been too long since I last blogged. This blog post will update you as to what Brant Cooper and I have been up to for the last few months, namely: finishing our new book, The Lean Entrepreneur.

We’re excited about The Lean Entrepreneur. It is a wholly new book that takes what we wrote about in The Entrepreneur’s Guide to Customer Development to another level, demonstrates the application of Lean Startup-like thinking in anywhere one desires innovation: social entrepreneurship, automotive manufacturing (ironic, right?), tech startups, music and artist development, and finance and investing, to name a few.

All of that, in it and of itself, is deeply interesting. But what we are most excited to cover in the book is the context and landscape of Lean Startup thinking.

Many a time, Brant and I have asked ourselves, “Why Lean Startup now? Why not 10 years ago? Or even 50 years ago?” The answers to those questions are explained by the coming social, economic and cultural sea changes we are rushing into headlong…whether we like it or not.

Think of yourself sitting on surfboard a hundred yards offshore, and a set of massive waves are visible on the horizon as they build towards the shore.

These waves are powered by the mobile internet and mobile devices, by the read/write digital fabrication technologies such as 3D scanning/3D printing, by “cultural technologies” such as crowdfunding, crowdsourcing and of course, by *Lean Startup-like methods themselves.

Currently mid-2012, we have only begun to feel the power of these disruptive waves. And when they start to converge upon the shore, suffice to say, we will be living in interesting times.

In the Lean Entrepreneur, we interview amazing entrepreneurs who are living in this future, and are kind enough to report back to us.

But back to the you on your surfboard – you have two choices:

1) You can paddle back to shore and build a fortification to protect yourself. (Think music labels in the last +10 years or so)

2) You can swallow hard, paddle farther outside (ie away from shore) and position your board and yourself to surf. (Think Lean Entrepreneurs)

If you choose 1) — you will be obliterated and washed away. Maybe not immediately, but certainly very soon. And when you do, it will be ugly; kicking and screaming the whole way.

Let me give you a contemporary example:

Entrepreneurial education (and education as we now know it) has just begun to feel the cold spray of this wave, and entrenched stakeholders aren’t happy about it. Direct competition like MIT OCW, New.edu, Udacity, Udemy and other learning platforms are going to displace traditional education. Moreover, hackathons like Lean Startup Machine and Startup Weekend are also disrupting entrepreneurial education. As are incubators — incubators aren’t just at the bottom of the investment ladder but also they are the top of the education ladder. Why go into debt for MBA, when someone will pay you to take a crack at a startup?.

Online learning platforms, hackathons, incubators are all initiatives that are surfing these waves, ie they have chosen 2). Now, listen for the unsheathing of the knives as those (eg student-debt-financial-industrial complex, tenured faculty, textbook publishers etc etc) in their fortifications find themselves about to be washed away.

Personally, I am very bullish about the prospects of unlocking human capital and creativity globally vis-a-vis this sort of disruption in education. This will make the world a better place, but the transition to this will be painful.

Now back to you: WHO are you? Where are you relative to these coming waves? Are you paddling out into deeper waters? Or are you scrambling to get to shore?

More on this later….

BUT TODAY you should get go buy The Lean Entrepreneur AppSumo Bundle while you can. It is 96% off, has a bunch of apps + pre-order of The Lean Entrepreneur.

*Yes, that is an argument for endogenous effects.

The #CustDev T-shirts are here.

FYI your life is now complete: The Entrepreneur’s Guide to Customer Development t-shirts have arrived.


CustDev T-Shirt

Steven of CargoHawk has put together a suite of startup-themed t-shirts that I suggest you check out.

For example:

One of my favorite analytics tools, Crazy Egg, has it’s own shirt.

Notable investor and great blogger, Bred Feld, has Feld Thought t-shirts available too.

As well as a bunch more.  If you have a startup or startup themed project and want to promote yourself via t-shirts — get in touch with Steve.