How Customer Development Failed Us

One of the attributes of great entrepreneurs is that they are tenacious and relentless. This guest post is from Andrew Elliott of Lottay. Andrew read the Four Steps to the Epiphany, tracked me down at California Coastal Commission hearing in Santa Barbara, and had me meeting with him in a stairwell during a break in my day-long meeting.

Here’s his story of when Customer Development failed.

——–

Hi, we’re Lottay!  We’ve been a startup for the past two years or so and we’ve come to a critical point on this crazy roller coaster ride.  Here’s our story:

We started like most entrepreneurs — an idea, an opportunity, and very little money. Our vision was to radically change the gift card industry. We were lucky to learn about Customer Development early on in the life of our startup.  It made more sense than our 60 page business plan predicated on a B-school class and a supernatural ability to predict the future. More importantly, we’d witnessed Customer Development’s massive success at another local startup.

We bought Steve’s book, started product development and began reaching out to customers ins search of our first earlyvangelists. Along the way we were fortunate to meet Steve, develop strategic partnerships, and raise a series A round of investment.  Confident we were Doing It Right, we pressed forward.  We even had some pretty monumental successes.  So how did Customer Development fail us?  Well, perhaps it’s more accurate to say that we failed customer development.

In retrospect, our mistakes fell mainly into one of two categories:

(1) Failure to follow the process

(2) Failure to be honest with ourselves

If we could travel back in time to that fateful meeting at the Coffee Cat and give ourselves a good talking to, what would we say?  Well, it just so happens that we’ve fitted Ross’s 2001 Subaru with a flux capacitor, gotten our hands on some plutonium and we’re about to hit eighty eight miles per hour!  Here’s what we plan to say:

Write it Down
This seems so obvious, yet it must be said: write down and track the evolution of your hypotheses. It’s something that’s almost too easy to gloss over — keeping track of your hypotheses and the results of your customer development work are vital. Failure to keep track of our hypotheses meant we were never quite clear on what was working and what was not.  This meant we had a hard time focusing our development.

It’s your vision damn it!
The customer does not define the product or vision for the company. The founders do. In Four Steps to the Epiphany Steve says you’re looking for a niche – he means that you’re going to hear a lot of “No’s” and that’s okay. What’s not okay is letting these non-customers define your vision daily.

Failure to maintain a coherent vision allowed us to pitch one thing, “It’s a virtual gift card you can spend on anything!” while selling something else, “It’s an ecard + money!”  After a while even we didn’t know which was our actual vision.

Make Money or Take Money?
Focus on revenue from day one.  It’s the only reliable metric for success. You may think you’ve found your earlyvangelists but you can only be sure when they start making you money.

Taking outside investment gives you options. But with this money comes temptation. Temptation to focus on growth and worry about revenue later.  Temptation to stay the course when your gut tells you it’s time to change.  Making revenue your first priority does so many good things for you as an entrepreneur – saves cash, validates customers, and tells you if you have a real business. It’s only a business if you make money.

Fail Fast and Move On
Being honest with yourself is perhaps the hardest part of being an entrepreneur. You’ve sold your friends, your investors, and yourself on your vision. You wouldn’t be putting yourself and your family through this if you didn’t believe in your idea. So who keeps you honest and tells you when you don’t have a business? Your customers and your hypotheses.

There may come a time you need to face the fact that the earlyvangelists you thought you had are actually just very polite users.  Face the fact that your product won’t be able to make money or scale.  Face the fact that your hypotheses are all wrong.  And ultimately, face that fact that it’s time to majorly rewrite your vision. The sooner you face these facts the more chances you’ll have to course-correct and win.

The Future?
Now that we’re back from the past, how are we moving forward?  Well, we’re back to customer discovery.  And this time we’re writing it down. In fact, we’re creating a simple software solution that guides us through documenting customer interactions and validating our hypotheses (let us know if you’re interested in testing it). We’re also charging customers and partners right off the bat for our services.  And we’re using that money to do more customer discovery and validation. Finally, we’re holding ourselves accountable to our vision and hypotheses.

Disclaimer
Keep in mind that our opinions are just that. We may have no idea what we’re talking about. After all we’re just some guys trying to make it in this crazy startup world.  We’d love to know what you think. Do these ring true to you?  How do you keep track of your vision and hypotheses?Leave a comment or email us at contact@lottay.com.

Lessons Learned

  • Customer Development is like being Agile.  It’s easy to say you’re doing it. Hard to actually do it.
  • Add to FacebookAdd to DiggAdd to Del.icio.usAdd to StumbleuponAdd to RedditAdd to BlinklistAdd to TwitterAdd to TechnoratiAdd to Yahoo BuzzAdd to Newsvine

    14 Responses

    1. Thanks for sharing your insights Andrew, the process sounds very familiar :) Some of the feelings you mentioned reminded me of what Ben Horowitz described in a video about being an entrepreneur, you move between two emotional states: euphoria and depression…

      BTW, I would love to test out your customer validation software.

      Best,

      Daniel Scalosub

    2. That trickiest part is keeping with your vision while getting current feedback from customers. How do you validate a vision against that feedback?

    3. Hi Steve,

      I am from Shanghai, China. I am happy to be the first one to comment on this article. This the second time I leave a comment on your blog. Hope you can see it.

      My question is how I find potential customer to talk to when I get out of the building. It seems that so hard to grap most of the people to talk deeply to understand their needs or their idea on the product or company.

      It will be nice if you can share your experiences on this topic.

      Best,
      Shell

    4. This is a great story. The section about maintaining ownership and purity of the vision really resonates.

      Too often, I’ve seen entrepreneurs take on this bicameral mindset. “We have our vision, but we also have to do something to get cash flow.”

      Worse, they will tack on a third piece: the “investor pitch.” You know, that subset of their vision that they feel safe for sharing with investors so that they don’t over-promise and under-deliver. Don’t ask my why this makes sense.

      It seems that honesty is a better approach for everyone involved. Your quest for customer discovery is a quest for those people who buy into your vision (or whatever minimum viable piece of the vision you have implemented to date), not a weak-kneed hope that you can find the right story to fit the listener.

      This doesn’t preclude redirections, but at least emphasizes that you should honestly test and scrutinize your hypotheses before pivoting all over yourself.

      Thanks, Andrew and Steve for sharing this.

      -matt

    5. Andrew,

      I’m currently reading 4 step and am having the same struggles you’ve outlined. Let me know when your product is available – sbmiller5@gmail.com

    6. Interesting post and wish you guys the best in the evolution of the startup. I continue to dislike the “fail fast” expression, although I don’t think you are recommending giving up if something isn’t an instant hit. After all, most startups take a lot of work to get off the ground. You are right though, sometimes there are no more pivots. You can run out of time/money or ideas for that particular avenue.

      Btw, for those looking to dig more into customer development and best practices around it, I think the book at http://www.custdev.com is a nice companion to Steve Blank’s book.

    7. Great insight, Lottay.

      Your section called “It’s your vision damn it!” is spot on. There’s a lot of temptation to be fickle on vision, especially when you don’t see immediate buy-in from many sources. But I think that you framed it well: you own the vision, not your possible non-customers.

      Paul

    8. Thank you for letting us eavesdrop on your conversation.

      I especially like the vision vs feedback. Your vision should evolve and be influenced by the feedback not driven by it.

      Vision = The macro definition of how you are going to change the world.
      Feedback / Iterate / Cust Dev = The micro definition of how you going to change the world.

    9. > In fact, we’re creating a simple software solution that guides us

      Hmmm… What can I say, you spend your time on creating a tool that will allow you to do you business instead of, well, doing your business ;)
      A paper and a spreadsheet is most surely enough. The difference definitely doesn’t justify wasting time on it. That is unless “Lets forget our idea and start a software business selling customer development process” is your new pivot ;)

    10. What are all the kinds hypotheses are needed for customer development?

      I’ve heard hypotheses talked about, but have not seen them specified. There is a book ACHIEVING PLANNED INNOVATION (Bacon and Butler) that specifies the hypotheses needed for new product development and, it gives CD people 4 questions to map the niche with (1. How is it done now? 2. What does it cost? 3. What are the problems? 4. What is the value of fixing the problems?).

      If you are serious about hypotheses: highly recommended!

      • Bill,
        Welcome to the blog. Most of the conversations about “hypotheses for Customer Development” are a shorthand for the ones that I describe in detail in my book the Four Steps to the Epiphany.
        The regular readers of the blog assume that you’ve read the book.
        Glad to know that there’s another book that describes the same process.

        steve

    11. Like the paragraph on writing down and tracking your hypothesis. I would only add, rewrite, revise and track again. This is likely to happen more than a few times.

    12. Steve,
      Interesting post. One of points above “it’s your vision damn it” is particularly important. I recently was interacting with a startup in the UK which is focusing on recorded video interviews (there’s a YCombinator co doing something similar).

      They, as I’ve seen with other tech startups, seem to be confusing the idea of customer development as finding product market fit by iterating the product to fit the market they’ve targeted. One of the brilliant points you’ve made with your theory is that customer development is as much about finding the customer for the product you’ve built as iterating the product to fit the market. This is particularly true with disruptive technology. It’s about finding a customer that has a real need where your solution is good enough. So product market fit can mean fit market to product, not just fit product to market :-)….

    13. Very true that ‘earlyvangelists you thought you had are actually just very polite users’. I think this is the most important point of the posting. I agree with ‘We’re also charging customers and partners right off the bat for our services.’ since cash flow and profit are the only real measurements for success of a business

      Great posting. Thanks

      Petre

    Leave a Reply

    Fill in your details below or click an icon to log in:

    WordPress.com Logo

    You are commenting using your WordPress.com account. Log Out / Change )

    Twitter picture

    You are commenting using your Twitter account. Log Out / Change )

    Facebook photo

    You are commenting using your Facebook account. Log Out / Change )

    Google+ photo

    You are commenting using your Google+ account. Log Out / Change )

    Connecting to %s

    Follow

    Get every new post delivered to your Inbox.

    Join 151,714 other followers