Our startup was founded at a Startup Weekend event in Manila, Philippines. If you are not familiar with Startup Weekend, you should check it out. They are held all over the world, and definitely a lot of fun.
In short, the weekend unfolds as a group of strangers form teams around product ideas and work over the weekend to launch a startup. It culminates with a final pitch to a panel of judges who choose a winner and prizes are awarded.
By the end, win or lose, you you get an invaluable crash course in the phases of the Lean Startup methodology. As a free added bonus everyone gets to experience hope, rejection, failure, disorientation, inferiority, and glimmers of hope once again in a condensed 48-hour format.
Fail fast, and if possible, fail right now.
Our original idea for the weekend was called “EmailGoGo.” It allowed a person to send and receive emails on a mobile phone through a SMS plan, not 3G. Where this idea came from is not important. It was our idea, and like most teams, we were extremely naive it. We thought SMS was a tube that allowed you to send any type of data through it. You just hack the protocols that limit the character count, and start sending email through it. Three minutes of research we realized that was easier said than done (i.e. it was impossible). Despite the nearly immediate setback, we persevered.
To build or not to build is not the question. Is it even a problem?
Instead of completely scrapping the idea, we kept at it. We figured if SMS was limited to 140 characters we would find a way to send and receive emails regardless. In the Philippines many people cannot afford cellular data, so the prospect of providing some internet functionality without 3G would be valuable. Thus like many other teams, we plunged into how we would build, monetize, and market this revolutionary product. We got ahead of ourselves.
At the suggestion of a Startup Weekend “mentor,” we considered another question, “is this product really needed?” In essence, validate that the problem actually exists with people we did not know (i.e. customer validation).
The only customer validation we could do on short notice was write up a quick survey and interview people on the street. We walked outside, and in 30 minutes we talked to 15 people, 12 of which said they would never buy our product.
Of the three that warmed to the idea, one said that he would only buy it because he did not have internet at home yet. He was our target audience, but 1 out of 15 ratio did not feel like the hallmark of a revolutionary product.
We also realized an important matter: our value proposition was not sustainable. As WiFi and 3G becomes cheaper we would loose market share. Who would want EmailGoGo if we they had easy access to WiFi? We were originally so focused on making the product work, that we did not see the fatal business flaws exposed by the surveys.
When at first you do not succeed, pivot.
EmailGoGo was unceremoniously killed on the spot. It was dead before we knew it. But despite yet another failure we changed gears and focused on SMS in a different context: a digital marketing channel. This idea came from our surveys, and it seemed to have traction.
SMSGoGo was born. In short, it was “Mail Chimp for SMS.” – easy-to-use software for small to medium sized businesses to send SMS messages to their customers, employees, volunteers, whomever.
It is not a new idea or an original one either. Sending permission-based/opted-in SMS marketing communications is popular elsewhere in the world, but not yet in the Philippines. In fact the Philippines has a SMS spam problem, so we saw an opportunity to be the first permission-based provider. Unfortunately we did not have enough time for another round of customer validation. Time was running out, and we had to prepare the pitch.
We worked through our business cases, value proposition, pitch deck, talking points, and even built a little software to demo if required. We used Pollinizer’s Universal Startup Pitch Deck as a basis for our pitch, which was a good place to start.
Each pitch was 2 minutes with a hard stop, so we rehearsed with a stopwatch several times. When it came down to giving the final pitch, we nailed it, but we lost the competition anyways.
We did receive a lot of positive feedback and interest from the audience and judges. It seemed like we touched a nerve, and at the after party we collected as many business cards as possible. The future of SMSGoGo was uncertain but it looked good.
Following Startup Weekend (see “How it Started – Startup Weekend” for background), my business partner and I were at ground zero again. It was humbling considering the amount of work we put into the weekend’s events.
If we learned something over the weekend, it was that we needed to start with customers. Here is a little of what I learned over the following 8 months about Customer Development:
Why Customer Development Comes Before Product Development:
What is Customer Development?
Customer development is finding prospective customers that have the problem that you are trying to solve and are willing to pay you for solving it. The only way to determine this is by finding and talking to prospective customers.
Why is it so important? Sooner or later, you will try selling a product/solution that solves a problem. It is more likely than not that your prospective customers do not have the problem you think they do. If you build product first, you will have a product that does not solve anyone’s problems. That is a waste of time.
Even if it does a problem or two, there are a number of reasons customers still will not buy your solution:
- it is not a priority to solve the problem
- they already have a satisfactory work-around
- they do not have money to pay you
- they are unwilling to pay enough for you to build a successful business
Good customer development makes the unknowns known, specifically, the unknown reasons why your idea will not sell.
Equally, you may learn that for the market size, the type of customers, etcetera, you do not want to pursue the business. The market might be too competitive, too small, too capital intensive, etc. In essence, the juice is not worth the squeeze.
It is best to think of customer development as unavoidable. Either before you build a product, or after, you will have to talk to customers and present your ideas. It is better to do it before you have built anything than after and you have to adapt it or scrap it altogether.
How to do B2B Customer Development Interviews:
I was nervous the first time I sat down with a perspective customer. I had an agenda and a lot list of questions, but none of it help me run the meeting overly well. What I lacked, turns out to be the most important attribute to customer development: succinctness.
Being succinct and brief keeps the conversation intact, and it drives to the most important points, and shows your prospective customer that you respect their time.
I quickly boiled down my long list of questions to just four:
- Is this a problem that you have? [I stated the problem I was trying to solve]
- If the answer is “no,” then inquire into the problems that they actually have.
- How do you solve it today or how would you want it solved?
- If someone were to solve this problem, would you pay for it?
- How much would you pay?
I often did not ask these exact questions, but my best interviews always answered these. I also found that the phone calls worked well. It helps keep the conversation succinct and it is easier to organize. Most of my phone calls were less than 20 minutes.
How to Find Perspective B2B Customers:
For me, this is the fun part.
Networking & Referrals:
I was most successful by working my network, and promoting my idea to anyone and everyone I met. This is hard work, but it pays off. People generally want to help, and if they know someone that will benefit from your idea, they are often willing to make introductions. You also have to ask for introductions too, just try not to be awkward about it.
You likely do not have the email addresses of the people you want to contact, making cold emailing hard. This is where referrals and Linked In can come in handy. Knowing what to say in the email is a different matter altogether. For that, I followed the template provided by Ash Maurya on his blog, Practice Trumps Theory.
I do not put much faith in a web traffic. Search Engine Optimization is extremely limited, and it is unlikely anyone will find you organically at the start. Think of your website as a a reference point which you will direct people if you meet them casually.
The only exception I would change my mind about starting with a website is if you postulate that paid traffic will be a primary source of customer acquisition. If you are building a business on that premise, it is worth testing it up front.
Who should do Customer Development?
The founders. No question about it. They are the only people able to respond appropriately and quickly to feedback this early in the game. It is also important to have all the founders there so everyone hears the same feedback. This will cut down on confusion later.
Pitfalls of Customer Development:
You will not do it – It can be hard to find customers, and your first conversations with them will feel weird. The conversations get easier with practice, so stick with it.
Conversion Rate – One of the major pitfalls that I ran into was not interviewing enough companies. I assumed anyone that I interviewed that said they might buy our product would actually buy my product. Wrong. Not knowing any better, when I had enough “yeses” (whatever that means), we started building the product. Our conversion rate from customers that said “yes,” to customers that paid was abysmal (<5%).
I will never make this mistake again. It is safe to assume a very low conversion rate for a new product, so it requires a lot of interviews. This can drag on and be frustrating, so it is important to remember that customer development is unavoidable. It is better to be frustrated earlier than later.
Disorientation – Interviews are incredibly disorienting. People love to share their problems, and it is hard to determine what is pertinent and not. I fought through this by taking good notes, and summarizing all my interviews in writing. My partner was also not in the interviews with me, which was detrimental.
Encouragement is Not Traction:
Encouragement is great. It can mean that people understand what you are trying to do, they understand the value, and they may be willing to help. What it does not mean is that you should start a business. I had 10 times more people say I had a great idea than I had customers willing to buy my product.
Hearing what you want to hear:
This is by far the easiest trap to fall in. Few prospective customers will ever say, “You have the worst idea I have ever heard. Get out of my office.” In my case, I wish they had. It is tempting to interpret the lack of a hard “no” as an implicit “yes.”
Optimism is great. It can get you through the tough times. Customer Development would be well serviced with a health dose of realism. Having good mentors to spot flaws in your reasoning is a good antidote to rose tinted glasses. You have to listen to them though.
So what does it all mean?
Customer Development is unavoidable. At some point you will have to sell something. Otherwise you are operating a hobby, not a business. It is important not to think of Customer Development as a phase either, which one day your business will not do. Customer Development is simply selling by a different name. It is core to your business. It is thus important that the founders do it, learn from it, and adjust the business accordingly.
If you have questions, or want to say “hi,” leave a comment and I will respond. Happy to help in any way I can.
I am currently in the process of shutting down my first startup called, SMSGoGo, Inc., launched in May 2013. My business partner and I had no idea what we were doing when we started it, but we wanted to try it anyways.
Starting and ending the business has been the most difficult venture I have undertaken. The experience gained was invaluable, and with any luck, there will be some nuggets of wisdom you can gleam from my future posts cataloging the good, the bad, and the painfully learned lessons of my first startup.