Tag Archives: startups

Searching for Product-Market Fit? Four Common Pitfalls and Ways to Avoid Them

By Karen Utgoff

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Death Valley (© Dan VanHassel. All rights reserved)

Finding product-market fit before investing in full-fledged product or venture development can save money, prevent missteps, reduce risk, and execute effectively. An effective search for product-market fit is essential to realize these benefits. This process involves identifying, testing, and adjusting key assumptions to find the right product for the right market. In my experience four common pitfalls can undermine that search and the resulting outcomes.

Overlooking key assumptions

It is all too easy to overlook key assumptions for future success and thus generally better to start with too many than to miss critical ones. If need be, separate the wheat from the chafe by asking “How would it impact our business if X is not true?” It is also important to recognize and test additional key assumptions that arise during the search process.

Designing hypotheses that aren’t testable

Many searches start with vague hypotheses, often because that is the best that can be done based on current information. As more is learned, hypotheses should quickly become more substantial and measurable. For example, “Clean drinking water is needed in disaster areas” becomes “Lack of clean drinking water causes two or more days of illness in more than 25% of the people living in disaster zones.”

Pivoting too much or not enough

It’s easy to overreact or underreact as you gain evidence to support or refute key assumptions. Pivots should happen when one or more key assumptions are invalidated based on an accumulation of evidence and insight. How much evidence is enough can be tough to gauge. Resist the urge to pivot based on a single or very few data points. Conversely, resist the urge to cling to assumptions for which there is little or no confirming information despite your best efforts.

Fooling yourself

It is easy for entrepreneurs and product champions to misread information gathered in the search for product-market fit. Thick-skinned optimists may be too mindful of how hard they have worked hard on their idea and draw strength when friends and colleagues express casual interest. They may dismiss potential customers’ difficult questions with “they just don’t get it.” Worriers and overly sensitive souls may fool themselves in the opposite direction; hearing every constructive question as a rejection. If either of these sounds familiar, consider that you may be turning a blind-eye to the very evidence that could lead you to product-market fit and future success.

Minimizing missteps

Be aware of blind spots and biases that can interfere with your seeing the situation clearly. We all have them; being mindful of these weaknesses will make you stronger.

Use a team approach to the search for product-market fit. Assemble a team with different perspectives to work together on the search. Be sure to include people with different skills and outlooks to reduce the risk of group think. Empower each team member to disagree without being disagreeable. Whether you are defining key assumptions, designing hypotheses or deciding on a pivot, consider assigning devil’s advocate duties to a team member or adviser who will ask tough questions and doubt conventional wisdom.

Don’t depend on your team or yourself to instinctively sense product-market fit. Instead, define it based on meaningful and measurable metrics in advance so that everyone on the team agrees on what success will look like and be able to recognize it if and when it happens. As you learn more through your search efforts, these indicators will change but this will be grounded in an informed business decision made after thorough discussion rather than a seat-of-the-pants change that slips through unnoticed.

 

© Copyright 2017 Karen Utgoff. All rights reserved.

Focus Early on the Value Proposition to Help Manage New Market and New Product Risks

By Karen Utgoff

Savvy small business owners and startup teams take time to develop, test, and validate assumed value proposition(s) before making a significant investment in a new market or new product. This is a cost effective way to learn whether — and how — to best pursue opportunities. Be smart. Include this step early in your new product development and/or market launch planning efforts.

Is this really necessary? The further a new market or new product is from your current business, the more value-proposition-based, hypothesis-driven approaches are likely to increase your probability of success, help avoid missteps, and minimize the cost of failure. It’s better to recognize a gap between what you think and what your market needs while you have the flexibility to improve product-market fit; if there is an incurable mismatch, it’s better to “fail fast and cheap,” especially if there would have been a big investment. Concerned that this just adds to your costs? Consider the wasted resources and employee demotivation associated with failure of a new product, especially when better alignment between product and customer needs might have led to success.

Before sinking dollars and employee time into a new market or product/service offering, develop a hypothetical value proposition. Use this as your starting assumption as you test, revise, and pivot to achieve the best possible fit between product/services, new target customers/markets and your business goals. Many believe this type of effort is just for startups but it’s very useful for any company ambitious to grow beyond familiar territory. This is different from the process Laurie Breitner describes to take advantage of the existing customer relationships and knowledge a team accumulates over time to clarify and confirm value propositions for established products in well understood markets.

Test your hypothetical value proposition to corroborate, refute, revise, and reinvent before making a big commitment. While methods for doing this aren’t foolproof, you will be amazed at what you can learn. The fundamental idea is to get feedback from customers and influencers early in the process. While this may reveal painful truths, it’s much better than discovering them after building the wrong inventory, focusing on disinterested customers, or setting prices too high or too low.

Three low-cost methods are within reach of most small businesses and new ventures. Each has its strengths. They are not mutually exclusive and are most effective when customized to apply to the particulars of each situation. In all cases, focus on learning not selling.

  • Observe potential users going about their daily routines. See how potential customers currently solve a problem and why they might value your alternative solution. These opportunities take some finesse to structure but cost little and — with the right frame of mind — can deepen your understanding of customers, improve your product, and clarify the value proposition. If you are contemplating entering a new market with an existing (or new) product, this method may work best as a next step with your interviewees (see below). If you are developing a new product for existing customers, it can build on established relationships.
  • Interview potential customers, influencers, distributors, and partners to gauge their attitudes and get their input. Your hypothetical value proposition embodies assumptions about what problems are important to potential customers and what they value in a new solution. One-on-one interviewing lets you test those assumptions and make changes to the value proposition, change the product design, and/or redefine the target market. Plan on devoting significant effort to interviews and to processing what you hear from each interviewee. These videos provide a good general guidance on planning, conducting and learning from interviews as a starting point; different situations, products, industries and customer segments require variations on this approach.
  • Test a pre-commercial (prototype) product by putting it in the hands of potential customers. Recruit a small group of thought leaders, early adopters, and (if you have them) interested customers to individually give you feedback on a prototype. There is nothing like getting an early version into customers’ hands to learn if the form factor, instructions, and performance meet their needs and it’s much better to improve the product before investing in inventory, advertising, and other expensive aspects of a product launch. Interviewing and observing this group maximizes learning — there is no survey that can follow up on interesting remarks or probe for more detail the way a skilled, well-prepared, objective, and curious interviewer can.

Who says you never get a second chance to make a first impression? All three of the above methods enable you to test your ideas, assumptions and decisions. To make the most of them and to preserve your chance for future “first” impressions, follow two rules:

  • Don’t argue with or disparage the expertise of interviewees or others with whom you engage. Be sure not to insist your assumptions are correct or preach that your product is “better.” Instead, acknowledge that you don’t have all the answers and appreciate the opportunity to learn from them. If you need to drill down for more detail, resist the urge to dissect the details in favor of asking open ended questions such as: “Why?” “How?” or “Can you tell me more?”
  • Be considerate. If interviewees are interested in spending more time with you than planned, be encouraged; but do not stay past your allotted time unless invited to do so. Be sure to thank everyone for their time and help. Ask if you may come back to clarify, ask more questions, or share future progress. An enthusiastic “yes” is a good indicator that you are on the right track.

When to begin? It is essential to begin early in the product or market definition/development process while you still have the flexibility, time, and resources to pivot. When well done, using hypothesis-based methods to craft, test, and refine an initially assumed value proposition can help to assure that product development and market development efforts are well-aligned and attuned to customers in initiatives that move forward. This increases the likelihood of success while reducing the risk that further investment will be off target.

 

 

© Copyright 2017 Karen Utgoff. All rights reserved.

When Better Isn’t Good Enough: An Entrepreneur’s Tale

By Karen Utgoff

2017-06-04 Mousetrap_patent_model_3_-_National_Museum_of_American_History_-_DSC00350

By Daderot (Own work) [CC0], via Wikimedia Commons. Exhibit in the National Museum of American History, Washington, DC, USA. Photography was permitted in the museum without restriction.

Many believe that if they build a better mousetrap customers will beat a path to their door, but it isn’t necessarily so. Inventors, small business owners, or startup teams confident that their vision of a better product, service, or technology will automatically lead to business success should balance that confidence with healthy skepticism. Testing product-market fit with potential customers, users, partners, influencers, and others could make the difference between success and failure. Consider this (made-up) cautionary tale.

Howie Ketchum, inventor and CEO of Ketchum Mousetraps, was in a somber mood after reviewing disappointing revenue numbers and similarly troubling web and mobile traffic statistics. Unique first-time visitors were plentiful and many made their way through all of the technical information detailing the advantages of his Internet-of-Things (IOT) enabled mousetrap with smartphone apps to enable monitoring from anywhere in the world. However, pitifully few signed up for more information, or even returned for a second visit let alone ordered the product.

The patented Ketchum IOT Mousetrap added an accelerometer and Wi-Fi connectivity to a traditional mousetrap. When a mouse triggered the trap the accelerometer determined its “status” and notified the owner via the IOT Mousetrap app. The company’s primary target market were home owners, who could buy traps directly from Ketchum. Companies with sensitive facilities could buy traps in bulk and monitor them with the app to provide a system that would be easily monitored by the maintenance staff. In this way, Ketchum planned to disrupt the pest control industry. Apps were available for all smartphones. In addition to notifications, apps kept statistics on all traps in use, allowed users to order new traps, and provided value-added tips on mouse control. If you find Howie Ketchum and his Internet-enabled, Wi-Fi connected mousetrap preposterous, check out this article or this one or this service.

Ketchum’s national product launch had been received with great fanfare including write-ups in top tech magazines and a national tour but did not result in sales. Efforts to improve the marketing and sales process had resulted in more visitors navigating through to the order page but nothing seemed to prompt more lookers to become buyers.

Six months later, Ketchum Mousetraps was out of money and closed for good; the 99,950 of the original 100,000 units of inventory Howie had stocked in anticipation of the product launch sold for 2% of the manufacturing cost. In his final act as CEO, Howie took down the “Build a better mousetrap and the world will beat a path to our door” banner from the reception area and left the office for the last time.

This fictional story illustrates what can happen when “better” isn’t good enough in the real world. Here are some of the (nonfiction) reasons “better” falls short:

Not “better” in the eyes of the customer:  A product or service is only better when it’s better in the eyes of enough customers to support a financially healthy business. Could Ketchum have been successful by offering a somewhat different product packages to the target customers? Or by targeting industrial customers directly? Or by concentrating exclusively on sales through established providers of pest control services? Or by aiming to be a rodent control business rather than mouse control solution?

Contrary to current practices, perceptions, or culture: When “better” involves a change in habits or violates the current culture, it raises rational and emotional objections that may have little to do with the problem the “better” solution solves. For the example of an IOT mousetrap, concerns might include users preferring not to have a phone app declaring they had a mouse problem.

Not invented here: When a customer has a homegrown solution that is already in place, there can be considerable resistance to adopting a new one, especially from a stranger. Whether this resistance is the result of ego or a more objective reason, it’s often impossible to overcome. If Ketchum had talked to  pest control companies, he might have found they already offered low-tech versions mouse control services that allowed for routine operations with well planned, efficient servicing schedules and routes rather than creating a need for immediate, unpredictable service calls as the app might have.

Not a high priority: When the problem is relatively unimportant compared to other issues and/or current situations are pretty good, users often will not take the time to seriously consider “better” offerings. In Ketchum’s situation, most potential customers may see their problem as the occasional mouse rather than a serious infestation.

Switching cost: Any additional burden — even a short term one — imposed by a new solution can easily derail consideration of a “better” product, especially for a low priority situation or where “better” does not result in a measurable financial improvement. For the cautionary case, Ketchum’s app adds a number of costs to the low-tech mousetraps, including giving up personal information, time spent on initial configuration, and the cost of buying new traps.

Switching risk: An unproven solution always carries with it the risk of disappointment. Perhaps it will not work or lead to unintended consequences that cause harm. Will an IOT mousetrap be plagued with false positives or false negatives? Will the app distract users from more important matters? What happens to pest control companies using their system if Ketchum goes out of business?

Too far ahead of its time: One of the most frustrating reasons for “better” falling short is when the improvement is too far ahead of its time. It may be that the time will be right for an IOT-enabled mousetrap when home automation systems controlled by smartphone apps become common.

Refusing to be seduced by the myth of the better mousetrap does not guarantee success but can help both established small businesses and new ventures minimize the cost of failure and live to try another way. My next post will offer thoughts on testing and validating assumed value propositions as a way to do this.

Related links:

Listen to the NPR interview with Professor Bill Hammack of the University of Illinois on “When technology bets fail” and watch his  videos on “How the Sony the Betamax lost to JVC’s VHS recorder” and on “Why the DVORAK keyboard didn’t take over the world.”

Read Nicholas Jackson’s March 28, 2011 article in The Atlantic on “Mousetraps: A Symbol of the American Entrepreneurial Experience

 

© Copyright 2017 Karen Utgoff. All rights reserved.

Look Before You Leap

By Laurie Breitner

Public domain. U.S. Air Force photo by Tech. Sgt. Jeremy T. Lock

U.S. Air Force photo by Tech. Sgt. Jeremy T. Lock. Public domain.

Too many entrepreneurs believe raising funds to finance their idea is a first step when starting a new business or expanding an existing one. Some create business plans — often only to satisfy lending guidelines — and head off to shop their ideas at banks or other funding sources. I have known people who depleted their retirement savings, put their homes at risk, and/or tapped friends and relatives with promises of great returns only to discover that they had not done their homework.

While starting or growing a business always involves some risk, none of us wants to take on more than is necessary. Before taking a financial leap, be certain that you can answer these questions thoroughly and with confidence — that is, you have some empirical evidence and/or analysis to back up your passion:

Does your plan have legs? Have you tested your idea to determine that you know and can reach your target market and that your planned offering meets their needs? Please don’t assume that if you “build a better mousetrap” that people will flock to your door to buy one. Instead, talk to potential customers; gauge their interest and learn more about their needs and some obstacles you will likely have to overcome. Also, consider the competition — there is always competition — for your target market’s dollars. How would your business woo customers?

What resources do you have/will you need to be successful? It is essential to have as full an understanding as possible of what resources (expertise, suppliers, location, marketing collateral, forms/contracts, etc.) you have and will need to be successful. If you plan a foray into a new business or market, find someone to help you better detail what’s needed. Consider visiting a library to access industry surveys and statistics (UMass Business Library), getting how-to information from industry associations, talking to business owners in a similar business that serve different geographical markets, and checking out industry discussions on LinkedIn and other web sources.

How long will it be before your plan starts generating revenue? Is your product/service well understood, or will you need to mount an educational effort to explain its uses and benefits? Consider your sales cycle (the elapsed time from initial contact to receiving payment). Do customers make buying decisions immediately, or is there a delay to get approvals, consider alternatives, etc. Typically, how quickly does your target market pay? If you plan to open a retail store, you could realistically expect payment at purchase. If, however, you plan to sell to government agencies, expect significant delays.

Can you start smaller? Many entrepreneurs are so bullish on their products/services and excited by their potential that they seek to fulfill the needs of multiple markets with a range of offerings. What is your low-hanging fruit? Is there a niche market that you could enter to build a satisfied/loyal customer base? Consider starting small to learn what works — and doesn’t — before making a larger investment.

How much will it really take to get your plan off the ground? It’s generally safer to be conservative; no one goes out of business by having too much cash. Before you head off to borrow money, consider whether you could fund your initial foray with cash from on-going operations? For a new venture, is it possible to keep your current job (and income) while building your new business on the side? Many couples/partners who want to open a joint business do so by having one work in the new business and the other stay in their current job to keep the financial boat afloat until the new venture starts to make enough money to support both. Typically it takes about 3 years for a new business to be able to support its owner.

How will you measure success? Some entrepreneurs wait until they start generating P&Ls (profit and loss statements) before looking at results. Instead, put together a project plan (with measurable milestones) as early as possible. This is difficult to do, especially without a history of operating results, but the process will help you think through the business challenges ahead. The information you need for your guesstimates will help you with early steps for the business itself — e.g., identify/vet suppliers, develop a sales plan and marketing materials, etc. — and become one yardstick to measure your progress. Adjust revenue projections and planned expenses as you learn. By having a documented plan to help you monitor progress, you will be more nimble and able to uncover small speed bumps before they become major obstacles.

If you learn that you will need outside funding, most banks and other funding sources will appreciate your diligence. And, you will have more confidence during the inevitable tough times when you are doing all the essential pre-work before your earn that satisfying first dollar from your new venture.

© Copyright Laurie Breitner. All rights reserved.

Navigating the Innovation Trail: Canyons, Chasms and Sinkholes! Oh My!

By Karen Utgoff

Death Valley (© Dan VanHassel. All rights reserved)

Death Valley (© Dan VanHassel. All rights reserved)

For both innovation-driven new ventures and intrapreneurs in well-established businesses, the road to new business success is frequently rocky and interrupted by gaps large and small. Often the team needs to build the road as it creates the product.  In addition to the significant canyons and chasms along the way, there are many smaller sinkholes that can swallow you and deceptively promising blind alleys that can take you off course. If you decide to blaze an innovation trail, here are some of the challenges you can expect to encounter.

Death Valley (© Dan VanHassel. All rights reserved)

Death Valley (© Dan VanHassel. All rights reserved)

The long, dry valley of death (pdf) between idea and fundable business is treacherous. Your team (and your idea) can die of thirst! Can you convince an angel, venture capitalist, funding agency, your company, or bank to invest, allocate, grant or lend your team what it needs? Can you make your current cash last long enough to see you through or are you counting on “rain” before your checking account runs dry? Be sure to consider carefully what you will need to make it across.

The labyrinth to the first customer is filled with blind alleys that can easily disorient even savvy navigators. Some will never find their way back to the main road. The biggest danger is potential customers who never say “no” but never decide to buy. The sale feels so close. You keep thinking one more meeting will do the trick, making all the time and effort you have invested suddenly worthwhile. It’s so hard to tell the difference between sincere interest from a future customer and someone who simply doesn’t want to offend by saying “no.”

The chasm between first customers and the main market was made famous by Geoffrey Moore in his landmark book Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers, which analyzed the challenges of growing beyond the first few, true-believing customers to achieve mass market adoption. It can be uncomfortable to move beyond your base of support but to achieve significant growth it must be done.

Cash flow sinkholes often develop on short notice. Even well-funded companies fall into them. There are many causes — for example, a new employee who isn’t productive or an unexpectedly problematic feature of the product — that can undermine your cash flow. It’s easy to spin your wheels in a futile effort to move forward but that only digs a deeper hole. The sooner you realize the underlying problem and fix it, the better.

The high growth grand prix comes just as you think you are home free. Suddenly your Gap Files 2business is growing faster than you thought possible and continuing to accelerate. You can’t take your eyes off the road for a second. Threats and opportunities are coming from all directions and with greater speed. You need to develop habits, processes, systems, and instincts to keep you alive and growing. The good news is that, for those who are brave and persistent enough to navigate through, success can be very sweet.

© Copyright 2013 Karen Utgoff. All rights reserved.

Nature and Nurture Make Innovators and Entrepreneurs

By Karen Utgoff

I am always perplexed by discussions of whether innovators and entrepreneurs are born to the roles (nature) or can be taught (nurture). Most complex capabilities are a mix of talent and learning the tools of the trade, and there is no particular reason to think innovation and entrepreneurship are exceptions. Some individuals with enormous potential never progress and others — seemingly less talented — get ahead by relentlessly pursuing goals and learning from experience. It’s a bit like learning a musical instrument; it’s great to have a good ear and nimble fingers but dedication and practice are essential.

The assumption that one either is or isn’t an innovator or entrepreneur from birth — you’ve either got it or you don’t — is dangerous in two ways. Those with an abundance of confidence in their innate abilities may believe that little or nothing need be done to improve, which can result in unnecessary risk and wasted effort. Those with great ideas, but little confidence, may forgo important opportunities.

This is especially unfortunate at a time when there is a refreshing expansion of programs and resources that support innovators and entrepreneurs in building upon their natural talents, often while developing a new venture.  Some of these are aimed at individuals who are considering starting an innovation-driven venture while others help teams already in the process of starting up or accelerating a new business.

It is easier than ever before for individuals with a great idea, substantial subject matter expertise and minimal business experience to learn the basics. In addition to local resources, intensive introductory courses are available through the Stanford Venture Lab or MIT Open Courseware for free. If you prefer a completely self-guided approach, here is a wonderful list of books (the Startup Nuts & Bolts section is a good starting point), many of which are also useful references for individuals and teams already in the trenches.

For hands-on programs, consider local and national accelerators and incubators that work with pre-venture and new venture teams. The iterative learning and doing that takes place in some of these is remarkable.  Here are three programs with which I have firsthand experience:

  • The National Science Foundation I-Corps program provides an intensive experience through which university-based teams learn new skills while exploring commercialization opportunities for a promising technology. As a mentor on one such team it was inspiring to share the experience with similar groups, all committed to improving their abilities as innovators and entrepreneurs.
  • The MassChallenge is an industry-agnostic accelerator program that draws new ventures to Boston (MA) for four intense months. The program includes exceptional office space, a wide array of seminars, ongoing mentoring, access to experts, and facilitated exposure to the Boston/Route 128 innovation ecosystem. I help out as a volunteer mentor.
  • The CleanTech Open is a sector-focused accelerator with regional programs together scale to a national program. I mentor for the Northeast CTO. Its decentralized structure allows it to serve the needs of innovators and entrepreneurs regardless of location while giving them access to specialized information and resources.

Of course, there are many other programs throughout the US and globally. Look for one that fits well with your situation and needs. Beyond such programs, seek out informal opportunities to learn as you make progress and build your network.

Innovation-driven entrepreneurs who are able to be constructively self-critical about their progress and skill sets relative to an objective framework are at a big advantage over the long-term. Having such a perspective allows for continuous improvement of themselves, their team, and their businesses. I will write more about this in a future post.

Minding the Gaps

By Karen Utgoff

There are many definitions of entrepreneurship. This one is my favorite because it is confirmed completely by my experience:

“Entrepreneurship is the process by which individuals — either on their own or inside organizations — pursue opportunities without regard to resources they currently control” (Stevenson, Roberts, and Grousbeck, 1989)

When a business is in a stable phase of its life cycle, management seeks to optimize expected results within the resources available. In contrast, entrepreneurs, as well as company-based intrapreneurs, seek to overcome or work around gaps in resources, customers, and knowledge to get something new off the ground.

As an operations person, Laurie is especially aware of gaps that could interfere with making the important transition from the entrepreneurial (startup or significant growth mode) to a more stable phase. Putting systems in place to attract, retain and manage employees that consistently and efficiently produce quality goods and services is key.

From a market-oriented business strategy perspective, I’m concerned with gaps in the business model, resources, and reputation that interfere with the ability to start up and grow (new or existing opportunities). A sound approach to developing well-aligned value propositions, competitive differentiators, product/market fit, and marketing/sales tools is key.Gap Files 2

So, expect to read more in The Gap Files about how entrepreneurs leading startup companies or innovation-driven growth initiatives within existing organizations can overcome obstacles, find help, and make do in the face of scarce or nonexistent resources.

© Copyright 2013 Karen Utgoff. All rights reserved.