How to Innovate like a Startup!

Lessons in lean startups, and techniques in identifying the right product market fit.

The following post captures some of my learnings over the last few years on techniques used by startups to test the product market fit.

The Successful Startup!

In his book “The Practice on Management”, Peter Drucker famously declares that there is only one purpose of a business: to create a customer.

The real purpose of a business is not to create a Product, but to create a Customer!

The customer is the person who “pays” to use the “product” or “service”, and without the customer there is no business.

In my conversations with several founders and colleagues that have gone on to create successful Startups, their one central advice has always been, “let your startup business be funded by paying customers”, once you understand how you can create the customer, you have created a self sustaining Startup that has a huge potential for upside growth, depending on your market of course.

The real purpose of Startups is not to create a Product — but to create a Customer!

This core idea should be the central mantra for any Startup!

The Product Market fit

To create a customer one must first correctly identify the right product market fit. The best way to do it is the hear it “right from the horses mouth” as it were i.e. let your customers guide the product.

In many cases product managers or founders that come from a technical background fall into the trap of “building forward” from the technology. They focus too much on the technology engineering and scalability, which in turn leads to MVPs taking much longer to produce and get into the hands of customers to validate hypotheses. In this case one may have a product that may be technically sound and scalable, but it may not have a good product market fit i.e. it does not really address the business case or solve problem for the customer in the manner desired.

Instead one must “build back” from the customer needs and use lean principles and MVPs to quickly get the product into the hands of users, to validate hypothesis of the product market fit, and then iteratively engineer the product.

MVPs should be used to validate hypothesis, measure interest and learn from the customer. In short the MVP should be leveraged to hone in on the product market fit. The central idea should always be, it is not about creating a product, but about creating a customer!

Identifying the right product market fit

In the lean startup world there are several techniques to hone in on the right product market fit. These techniques are used to evaluate the following,

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  Measure the customers interest in the offering. Validate interest in the product. This may be done using the following techniques:Fake feature, Dry wallet, Crowdfunding, Landing page, High hurdle.

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  Identify existing market opportunities. This may be done using the following techniques:Problem interviews, Family tree.

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  Uncover the problems in the customer journey. This may be done using the following technique:Concierge MVP

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  Articulate a market problem unfamiliar to the customer, and how the proposed product might solve it. This may be done using the following technique:Explainer videos

Let’s take a look at each of these techniques individually,

Measure customer interest

Fake Feature approach

In this approach one provides a front end interface to a feature that does not actually exist yet.Eg. The Uber pool feature was initially just introduced as a button without the actual “pool” functionality implemented (it simply got you a regular individual UberX ride). However putting this button helped Uber measure the market demand for this feature.

Dry Wallet approach

Dry Wallet approaches are a mechanism to measure market demand for a product or a service, when one does not actually have the product yet.Eg. Customers attempt to purchase a given product, however when they enter the committed stage of the journey they can be informed that a product is out of stock or coming soon. This allows one to demonstrate customer desire for the product or service. Customers contact information may also be collected to identify early adopters. This strategy is also used a good fit for selling a subscription-based physical product, to validate market demand.

Crowdfunded approach

Posting ideas on crowdfunding websites allows one to gather feedback from the market. Interest from investors and customers will show that people are interested in the solution.

Landing Page

In this approach a Landing page for the product is created and is used to pitch the product idea. The product itself may not be ready but the Landing page simulates what the experience of the completed idea would be like. This allows you to test the validity of your idea in the market, convey the product idea and generate a pre-market buzz. It allows early adopters to sign in and be notified when the product becomes available.

High Hurdle

In this approach a hurdle, such as an upfront commitment or registration, or perhaps slightly higher cost that the customer is willing to pay, are placed in front of the customer, to test how much the customer really wants or needs the product. This approach could be used to test for offerings that differentiate based on niche, quality or a customized service.

Identify existing market opportunities

Problem Interviews

In this approach one attempts to understand the current solution that the customer is using to address a current problem, and the issues with the existing solution, and attempts to identify alternatives for a better and more frictionless experience.

Family Tree approach

Use cases where someone is solving the problem manually or with a lesser efficient system. This helps prove that a market need exists for the service.

Uncover the problems in the customer journey

Concierge MVP

Provide a highly customized service for a small group of customers, to allow learning a real customer journey and to identify the problem areas. The services may be provided manually at first, to understand the problem areas and friction points, and intent is to finally automate this service.Eg. AirBnB started out as a Concierge MVP. In the initial days AirBnB took pictures of their apartment, put it up on a simple website. This allowed them to identify some of the problem areas when providing this service. Once they had were able to hone in on a good customer journey and started achieving scale they then transitioned into the AirBnB product offering.

Articulate a market problem unfamiliar to the customer

Explainer Videos

In this approach a short video is used to provide a simulated product walkthrough even though the actual product is not fully ready yet. This allows one to educate the customer on a problem they did not know they had, and how the product seamlessly solved the problem.Eg. Dropbox used this approach and had a short video on their website, before the dropbox product was officially ready. This allowed the customers to identify that file synchronization between different devices was an issue, and educated the customer on how the product seamlessly solves the problem.

MVPs

Eric Ries, the author of the Lean Startup described MVPs as: “a version of a new product which allows a team to collect the maximum amount of validated learnings about customers with the least effort.”.

MVPs are a great tool to hone in on the customer behavior, identify problem areas, collect data and validate hypothesis. MVPs help identify the existence of problems and friction points.

The central idea behind an MVP should be, to build a product quickly to validate learning by doing as little as possible, and not to create a saleable or marketable product.

Techniques to quickly build MVPs

How to quickly cobble together an MVP

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  Piece meal approach :Use off the shelf available products to cobble together the MVP. Another option would be to customize an existing product. eg. customizing Shopify or OROCommerce with business specific features to help validate the product market fit hypothesis.

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  Imposter Judo:Use a competing product as the backend, or using an existing or competing product to fulfill the journey. Use a competitive product to test your hypothesis. The most widely provided example of this is Zappos. When Zappos started they simply had a front end website to capture orders and demand. The founder visited the local stores and would take pictures of the shoes and post them on the website. If someone placed an order they would then go to the store to purchase the shoe or would fulfill orders using Amazon or other services. This allowed Zappos to first hone in the correct product market fit before investing in inventory.

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  Mechanical Turk:Use manual intervention on the backend to simulate a completed backend. In this approach there is an actual human manually operating in the backend. eg. Image recognition by actual people instead of complex image recognition software. This option is best used when one has a complex backend, and is generally used to simulate AI related backend features.eg. to create a more realistic chatbot experience of speech recognition fulfillment etc.Amazon now provides this as a service (https://www.mturk.com/)

Summary

• Find a product market fit by using the techniques listed to measure market interest, identify existing market opportunities, uncover problems in customer journey or articulate unfamiliar use case concepts.
• Test the product viability and product market hypothesis by building a quick MVP, using the approaches described above.
• Iterate your product based on learnings in the MVP.

Final note

It is important to remember that the driver to engineering the product must be the product market fit. In addition to the techniques and ideas listed above a final note in keeping with the product market driven focus and engineering MVPs.

User Experience

• Focus on user experience and interaction with your product. Provide a seamless and frictionless customer journey. Validate hypothesis and learnings using MVP and A/B Testing.
• Provide unsurpassed customer service.

Engineering

• Do not worry about hacky code in MVP. Focus instead on putting together a working MVP that one can get into the hands of the customers.
• Do not worry about scalability in MVP. Focus on first refining your user journey so that you actually have a large customer base. If you then run into an issue where scalability is a problem, then you are doing something right on the customer side that has caused you to get the large customer base!

Happy Innovating!

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