Comments on: Vertical Markets 2: Customer/Market Risk versus Invention Risk

By: Alpha Testing « Two Sixes Blog

Alpha Testing « Two Sixes Blog — Tue, 06 Jul 2010 02:04:25 +0000

[...] long to get the important/risky pieces of my product out the door. I don’t really have much product risk, but for those features that may not work, (such as my bayesian filter), it’s important to [...]

By: Max Marmer » Blog Archive » Market Evolution: The Special Case When a Startup Has No Market Risk

Thu, 01 Jul 2010 07:58:36 +0000

[...] this post Steve Blank urges startup founders to consider what kind of risk they face if they want to be [...]

By: David Locke

David Locke — Mon, 08 Jun 2009 16:09:43 +0000

The customer/market risk situation occurs because the vendor is skipping the early markets and going straight into the late market. SaaS is automatically a late market. Consumer is automatically a late market. Innovation in either of those two spaces should only be done if the market exists.

In the early market customer/market risk is mitigated by strategies that assume no market exists.

The innovation risk situation occurs because the vendor proceeds with commercialization strategies that assume markets exist.

The real classifier here is discontinuous or radical innovation or not. It is a choice, a commitment, not a reality of the innovation itself. It is a go to market choice. The underlying innovation will be divergent or convergent. It is only in the marketing view where the distinction between discontinuous becomes the critical issue.

Going to SaaS directly leaves money on the table. But, these days being a product isn’t cool, so we leave money on the table. Yet, going through the technology adoption process isn’t about money alone. It is about developing your product, market, and company in a balanced manner. VC money usually induces imbalances, which kill the company soon enough.

I appreciate the categorization scheme, more to integrate into a bigger and better picture.

By: Denis

Denis — Sat, 30 May 2009 16:46:34 +0000

The question basically boils down to “how do you defend yur business – through marketing, technology, both or neither?”. Not only one needs to ask this qestion, but also answer it honestly and fully appreciate the outcome. If you can’t find a sustainable advantage this means that competition will likely drive the prices down and make your life miserable with below-substinence income. A good case study here is most iPhone apps.

In this situation one must make a choice:
1. find a different business (seriously) or
2. be prepared to be the most lean business in the sector (which is only possible where economy of scale does not create huge entry barriers). In particular, you will likely have to do without venture funding becuase it is costly.

I think it would make a great future post – a list of potnetial non-technical advantages one could build out to defend their business.

I suggest first item on the list – most companies are really bad with customer service, so building the support feedback loop in from the start will achieve both reduction in support cost through continous improvement and improve experience of those who still have to ask for support. Holding founders and engineers feet to the fire will inevitably remove the rough edges from the the product, imporving bounce rates of newcomers and loyalty of established users. These two numbers have direct impact on revenue and financial health.

By: BrianB

BrianB — Sat, 30 May 2009 11:14:42 +0000

Hi Steve,

Thank you for this really great blog. I have been following for about a month, and always look forward to the next post.

Regards,
Brian

By: steveblank

steveblank — Sat, 30 May 2009 03:58:30 +0000

David,
Technical differentiation is a business school checklist. It’s something VC’s can ask about, rationally analyze and feel comfortable if you can articulate a defensible technical and patent strategy. In contrast, customer acquisition, brand, reputation, etc. are much softer and much, much harder to measure (or believe) in a very early stage startup. Particularly if the VC’s don’t know you or your team and/or you lack a reputation as fearsome and successful marketeers.

If you think your differentiation is going to be on the sales and marketing side, then look in a mirror and ask yourself, “would someone about to give a company a check for a couple of million dollars believe a sales and marketing differentiation story from this team?” Why?

steve

By: DavidS

DavidS — Thu, 28 May 2009 12:48:42 +0000

Interesting post Steve. I’ve heard investors ask about sustainable technical differentiation for companies that you put on the customer/market risk end of the scale. Personally, I think that customer acquisition, brand, reputation, etc., are much more differentiating than technology. Technology can often be dealt with through a press release (at least perception). What is your perspective on ‘sustainable technical differentiation’ for customer/market risk companies? And if you agree, how would you address this question when asked?