The Startup Owner's Manual: The Step-By-Step Guide for Building a Great Company

The old product roll-out process is totally wrong for startups. That process is appropriate when customers are known and the market is well-defined. This is often not the case for startups. Customer development, then, is very important for startups, and there are a number of phases in the framework:

• Customer discovery: develop hypotheses and test them with customers.
• Customer validation: test sales, see if people will buy, and see if you can scale up.
• Customer creation: marketing.
• Company building: transition to a sustainable enterprise.

Startups should aim to develop the first product for a small target market via a Minimum Viable Product (MVP). The object of the MVP is to get a product out there for the early adopters (called earlyvangelists here) to play with.

Putting out an MVP forces developers to focus on the important features, not the bells and whistles. The product can be refined once there’s customer feedback.

This includes product vision, features and benefits, and a description of the smallest number of features it would take to make a stand-alone product (i.e., the MVP).

Along the web/mobile track, the low fidelity MVP is used to test if you’ve identified a problem people care about and it employs user stories instead of feature lists.

This includes customer problems, needs or passions, customer types (for example, end users, influencers, recommenders, buyers, etc.), customer archetypes, a day in the life of a customer, and a customer organization and influence map.

For physical products, this includes a description of how the product gets to the customer. Think about the suitability of channels for your product, and the authors recommend that startups pick just one channel that has the most potential for your product.

For web/mobile products, consider the advantages and disadvantages of different channels.

This describes which market a product fits into: established market, new market, extension of an existing market, re-segmentation, etc.

Once you know the market, you know something about the competition, and you can come up with a preliminary plan for that.

This describes how you will get, keep, and grow customers. For physical products, there are four “get” stages — Awareness, Interest, Consideration, and Purchase.

Devise several different “get” strategies and test them. Customer retention programs come into play during the “keep” phase, and the “grow” phase focuses on selling more stuff to existing customers.

This describes physical, financial, human, and intellectual property resources.

This component also includes a dependency analysis: what are all of the things that have to happen that the company can’t control, and what are the risks if the things you’re dependent on end up failing? Contingency plans are important here.

• Partners Hypothesis: Involves listing all of the partners you’ll need and identifying what you need from them and what they’ll get in exchange.
• Revenue and Pricing Hypothesis: It includes the following questions: 1) How many items will we sell? 2) What’s the revenue model? 3) How much will we charge? 4) Is there evidence that this is worth pursuing?

• Total Addressable Market (TAM): the universe where your product lives
• Served Available Market (SAM): the people that can be reached via your sales channel
• Target Market: those who are your most likely customers.

Look at industry reports, press releases, libraries — anywhere you can get metrics that help you gauge the size of the market. It’s going to be tricky to estimate brand new markets, so consider looking at adjacent markets and see if you can find any comparable companies.

You have to get out of the building to discover: How well you understand the customers’ problem, how important the problem is to the customers, and exactly how many customers are talking about it, if the customers care enough about it to tell their friends.

The Customer Discovery process has five steps:

• Design experiments for customer tests
• Get ready for customer contact
• Test how customers perceive the problem
• Understand the customer's mind
• Get information on the market and competition.

Following customer problem testing, this phase tests the solution:

• Update the business model and team
• Create a product solution presentation (physical) or high fidelity MVP test (web/mobile)
• Test the product solution: See what customers think by asking them.
• Update the business model (yes, again)
• Find board members.

This pre-launch phase of the customer discovery process involves answering three critical questions:

• Have you found a product-market fit? You have to be sure your product is a good fit for the market. Is this something a lot of people need? How well does it solve the problem it’s made to solve? How many people would buy this thing?
• Who are your customers and how do you reach them?
• Can you make money and grow the company? Figure out if your solution is a winning proposition.

Crunch the numbers and do a rough estimate to see if there’s any chance that you can make money with your new product.

Customer validation means test selling at every point in the process (all the while keeping costs low — it’s not the time to scale up yet):

• Phase I. Get ready to sell.
• Phase II. Go live. Try to sell.
• Phase III. Refine your product. Position your company.
• Phase IV. Analyze. Pivot or proceed.

Founders cannot lead from a distance here; they have to be directly involved in the process.

This phase begins with making a positioning statement: a message (it should be pithy but compelling) that explains why people should buy your product.

Customer-focused sales and marketing materials should be developed largely from the information that you generated in the hypothesis you created for the customer discovery process.

The next step is to develop a sales roadmap, which accounts for every step from the first sales call to the contract signing.

Keep in mind what you’ve learned about the customer and revisit some of the materials (especially the organisation and influence maps) you developed back in the customer discovery stage. Make a model of the purchase process, and identify key influencers.

A Customer Access Map can help you identify organisations that customers belong to (if you’re selling to the public) or key deciders in the organisation (if you’re selling to a business).

Put all the maps next to each other, also considering the sales strategy, and write an Implementation Plan that shows everything that has to happen before selling your product.

The Get Ready to Sell phase involves first refining plans and developing tools to acquire and activate customers.

Remember: acquisition is when the customer first hears about the product and activation is when customers participate, enrol, or do something. Don’t launch the Acquire effort unless the Activation program is ready for customers, and the key to the latter is engagement.

Tip: Measure Everything.

Using the information you’ve gathered to build previous versions, you’re going to build a high fidelity MVP, which will have more features than the last one. It’s definitely more polished, but it’s still not the complete, finished product.

Be sure to capture as much data as possible on customer reaction to the new MVP. From there, collect data, analyse and optimise — so it goes from the moment a web/mobile business opens its virtual doors until the day it dies.

In this phase, you are validating your business model hypothesis, but you are still testing (by making real sales). Don’t try to scale up yet — the object of your sales is to test your business model.

For physical products, you don’t need a lot of customers, just a few. There are different kinds of customers (for example, early evaluators, earlyvangelists, scalable customers, and mainstream customers), each one demanding a separate strategy.

Optimisation is all about getting more out of everything — for example, if you have a 6% activation rate, try to push it up to 10%.

Try for measurable improvement in each thing you measure. This is a continuous process that won’t end until the business either folds or goes public. Optimisation should be focused on increasing volume, reducing cost per activated customer, and increasing the conversion of visitors to users.

• Know what you’re testing and why
• Don’t over-test
• Tests should be controlled and follow accepted protocols
• Remember the value of the customer over their lifetime, not just for this one transaction.

At this point, go back and look at the Positioning Statement you wrote during the customer validation phase. How did it survive the validation process?

If the customers didn’t love it, do you understand the reasons why? Also, meet with the key influencers that you identified back in the customer discovery phase. Now is the time to meet with them. Test to see if these influencers and other industry analysts will say good things about you.

Review and analyse all the material you’ve generated; make sure that there are solid answers to the hypotheses. Look at your business model and how it’s changed through this process. Do your metrics provide evidence that this is a scalable endeavour that could turn a profit?

Revenue growth curves are different depending on the market type: growth in a new market company will look like a hockey stick on a graph, slow at first and then taking off; an existing market shows a steady rate of growth. The numbers that you have are your best guess, but remember that nothing is certain.