This is a guest post by my Startup Owner’s Manual co-author Bob Dorf.
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While statistics are weak on startup success rates, the worst one I’ve seen suggests that 2 in 1000 venture backed startups will ever achieve $100-million or more in valuation. Another stat puts that number at 2% rather than 0.2%. Either way, the “hurdle” for successful, scalable startups is high, and it gets higher every day as customer acquisition challenges continue to increase.
I’ve spent more than four decades founding, coaching, teaching and investing in startups, and nothing breaks my heart more than meeting a starry-eyed founder who says “we’re almost ready to show it to people.” The “it” is a physical or web product they’ve often been locked-down, pounding away at, for many weeks.
In my view, this is the nastiest of all startup sins: failing to involve customers and their feedback from literally the first day of a startup’s life, keeping the most vital opinions silent—those of the eventual customers—for far longer than necessary.
When I hear this comment, as I do far too often, I switch to pleading mode: “Please. Take a week. Get some feedback. Does anybody really care, or are they giving you polite nods and little more. This generally leads to the second biggest reason too many startups suck: they’re solving a non-problem.
Does anybody care? Many Startup Owner’s Manual readers ask why Steve Blank and I are adamant that Customer Discovery happen in two separate, distinct phases: “problem” discovery and, later, “solution” discovery. There’s just no other way but, as Steve Blank has said for a decade, to “get out of the building” and talk to the only folks who matter—your customers.
Building a solution to a problem of moderate or lukewarm interest to users is a long-term death sentence for startups, where founders will almost certainly commit to 20,000 hours of their lives(or 5 years of 80-hour workweeks) in order to “beat the odds” and deliver a breakout success: a sustainable, scalable, profitable business.
Why, then, are so many founders so reluctant to invest even 500 or 1,000 hours upfront to be sure that, when they’re done, the business they’re building will face genuine, substantial demand or enthusiasm. Without passionate customers, even the most passionate entrepreneur will flounder at best. Dropbox is a great example. It scaled like lightning by solving an urgent, painful problem for millions of consumers. The product is so good, helpful, and easy to use that it literally almost does its own marketing organically through the product’s viral nature, just as Hotmail and Gmail have done since inception.
What’s the honest trajectory? There can only be one Mark Zuckerberg, and at last look he’s young and healthy. Can every startup skyrocket like Facebook or Square or Google? It’s downright impossible. The solution: understand your startup’s “honest trajectory” and align objectives of the founding team and—importantly—its investors to define and agree about what “success” looks like. Thousands of entrepreneurs would be a lot happier if their focus was a solid, growable, defensible niche business that might never go public or be worth $100-million. There’s a ton of money to be made “in the middle,” a broad swath between struggling or gasping for cash and ringing the bell at the NASDAQ.
Find the right trajectory for your business and focus not only on reaching it, but on assuring that the result is a sustainable, repeatable profit engine that can perform and grow healthily over time. Use Customer Development to identify and refine the potential profitable niche and stay in close contact with customers as you build, to be sure you’re building something they’ll want to have…and keep.
Stand Out in the Crowd: If you’re solving an important problem, make sure your solution stands out in the crowd. Hundreds of entrepreneurs I’ve met never spent an entire day Googling their industry, other ways to solve “their” problem, and few have spent time “playing consumer,” trying to find “their” own product, or one like it, and creating a “market map” that assesses all the competitive solutions, their strengths/weaknesses, and where the new product fits clearly and distinctly in its competitive environment. If you can’t figure this out on your own, and relate it to customers succinctly, it’s a certainty that your customers never will.
Going Forward is NOT About Standing Still: Another of my high-frequency “sad” moments happens when visiting with a team that is consistently “flatlining,” or delivering minimal or trivial user growth week after week or worse. Clearly, something’s horribly wrong, and everyone just keeps showing up, doing their jobs, without attacking the core problem that’s almost always a lack of palpable customer enthusiasm. What’s the point? What are they waiting for? It’s time to bring the leadership team into a room, dissect each key element of the business model, and identify pivots that are worth exploring smartly—where else—with customers.
Going Forward Is Often About Going Backward First: Entrepreneurs pride themselves in their problem-solving abilities, tenacity, and willingness to run through brick walls to make things “go.” More often than not, the DNA strand that makes entrepreneurs great is the one that’s their undoing when confronted with “flatlining” user adoption, growth, referrals, or frequency. These entrepreneurs need to switch smartly out of “do” mode and return to the earliest “discovery” steps to find a distinctive, exciting solution to a seriously painful customer need or problem.
It’s the only way to make a startup not suck.
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One great way to Google your industry is using Google Alerts, using keywords for your market niche and competitors. This helps you get the latest developments automatically. Just be sure not to spend too much time analyzing your competition. Getting out of the building to learn from your customers should come first.
This is one of the best posts I’ve read in a long long time. Thank you Bob. Would love to see some more examples of companies that made it with a lukewarm problem, and companies that failed with a highly painful problem. Also, what do your venture stats say about exists greater than $50MM? $25MM? How about $10MM and $5MM? Can you solve lukewarm problems and expect a more favorable, albeit lower, exit?
Excellent objective observations. Valley of Death Stats FYI:
1) Thursday WSJ 9/20/2012 reports Harvard Business School’s Shikhar Ghosh > very exstensive study with results
2) Paul Graham blogged recently that the ~$10 Billion in YComb. valued companies came from a handful of huge hits
Jim McCarthy
Bob,
I like the post a lot. I work a lot with scientific founders (and went through I-Corps taught by Steve). What I find is a tendency among technical founders to want to just go start the business because they are certain they know there’s a need and they are certain that customers will want whatever it is they are offering. At times they have trouble seeing the difference between a large customer sponsoring research with them as professors and buying the same technology from their startup through an arm’s length transaction when scale, delivery, quality, pricing and service become predominant considerations. I’ll use this post to defend my claim that there’s value in customer discovery and validation…
Neil Kane (http://www.beliefwithoutevidence.com)
Truer words haven’t been said. I learned the hard way by keeping it under wraps then showing it only to learn it wasn’t a big enough problem. Second go around I learned about customer discovery and it made all the difference, I haven’t committed this deadly sin since. Sometimes life’s toughest lessons are painful but necessary to make you stronger in the end. For this I’m very grateful for your startup insights and lessons.
Well said, Bob! There’s nothing worse to see than optimistic founders hit the launch button and hear virtual crickets as the masses fail to arrive.
Actually, there is something worse: When founders conduct surveys because they feel a need to “validate with some customers”–in other words, they just want to check the box for investors and can’t imagine the data coming back negative.
Those of us who have been there continue to need to educate and build processes that are accessible to founders. Certainly the Startup Owners Manual and overall Customer Development Process is a big step. It’s also the reason we developed the Minimum Viable Concept Test to help startups get a dose of customer feedback at the earliest idea stage.
And instead of learning the hard way from failure, I hope that we can teach founders to learn a better way to start.
Perhaps more people should buy a franchise ?
Hi Steve –
When you say “Thousands of entrepreneurs would be a lot happier if their focus was a solid, growable, defensible niche business that might never go public or be worth $100-million.”
Are you saying too many entrepreneurs are focused on the $100M company to then be let down?
Sage advice
“Knowledge speaks, but wisdom listens”….Jimi Hendrix
[…] article first appeared on September 21, 2012, as a guest post on Steve Blank’s blog. It is republished here […]
“most people should just get a job” – donald trump
What if you feel you have a great idea that tackles a real problem, but aren’t sure you how to monetize it?
This is definitely a post worth reading: http://andrewchen.co/2012/05/30/stop-asking-but-how-will-they-make-money/
Andrew’s answer to you, I suspect, would be “don’t try to innovate monetization – just grab one of these models and try it”. Then again, I don’t know your exact situation. Good luck! 🙂
Thousands of entrepreneurs are just crazy dudes !
This actually brings into play another consideration, do venture capitalists filter enough, surely less people should get funding but get more of that money.
All that money that goes to badly managed startups could be spent on great startups, hey steve, perhaps you need to work with a vc fund as a filtering guy ?
Great post, but how can you ask your possible customers when you don’t know which is the problem/idea? Do you have any problem to suggest that are worth to be solved?
I recommend talking to a lot of people. If your sample size is big enough, you’ll figure out what the common pain points are.
[…] 2. Porque tantas startups (e startupeiros) não prestam. […]
[…] Dorf, co-author of Startup Owner’s Manual, has a post on Steve Blank’s blog titled Why Too Many Startups (er) Suck where he cites a stat that between .2% and 2% of all venture-backed startups ever sell for more […]
Bob, this is a great post. I especially like the seemingly simple advice to google your industry. I run into a lot of startups that have no idea of the competitve landscape. Recently a founder told me of the “global phenomenon” that is WordPress. He was working on the “first” ecommerce plugin for it.
Spending a day googling competitors once is great, but it’s even better to keep tabs on industry on ongoing basis, since new companies could enter the marketplace and stay in a blind spot which can be very dangerous.
Frank,
Did he have a business plan ?
Did his team include a business person ?
Did you stop talking to him and go do something more productive with your time ?
[…] article first appeared on September 21, 2012, as a guest post on Steve Blank’s blog. It is republished here […]
This is all sound advice; certainly, a lot of start-ups have failed for not thinking about these issues, and “does anybody care?” is a really important question. But to me, the guidance doesn’t get at two critical issues:
1) How do you even identify “customers” if you don’t have a solution in mind already? Sure, it’d be cool if you could breeze into 50 different meetings and say “We’re really smart, how can we help you?”, but that doesn’t happen in real life. Rather, it seems like there’s a delicate balance between defining just enough about what you might be able to offer so that it’s interesting to customers, and defining it so concretely that it’s too narrow to meet their needs… and that first stage often needs to take the form of a working model, on which significant effort must be spent to make sure it cleanly demonstrates the potential(s) of the idea.
So the question is, what should a start-up do to figure out where that point of “just enough” definition is?
2) The other challenge with customer research is that it carries a risk of disappointing precisely the most valuable customers. When you come in and say “Look at this, it’s really cool”, and the customer agrees, the words you dread to hear are “Great! I’d like 10,000 units next quarter”. So again, it seems like it’s important to do significant up-front work in understanding how to answer that question.
So a similar question: how can start-ups make appropriate decisions about the amount of work needed to be ready for a sale?
Hi Olin
Good points. I think the solution is to talk to early evangelists first. These guys see “just enough” and recognize the potential. They are normally not the ones who will buy it in large numbers but play an important role in the customer development process. They recommend and suggest your product to others so that “just enough” is enough to sell the first units. If done correctly you shouldn’t be surprised by a large order.
Thanks for this post. Puts a lot of things in perspective.
A few hours ago, a guy was telling me about a uk startup that burnt £20 million and got no sales.
I blame the VC people, I never knew they were so stupid, I must go ask some for money soon !
Brilliant!
I think the solution is to watch all steve’s videos and read all his books before you startup !
This is undoubtedly one of the best posts on startup success or failure. I think before even someone embark on a journey, they should thoroughly research on the problem they are trying to solve. More complex the problem is, more impact the solution will make. Customer Discovery happen in two separate, distinct phases: “problem” discovery and, later, “solution” discovery. There’s just no other way but, as Steve Blank has said for a decade, to “get out of the building” and talk to the only folks who matter—your customers. — If, you as a entrepreneur are not doing it, start doing it now.
No excuse for experience, too many startups are young teams, you need the wise Obi Wan Kenobi, the force is strong with this blog 🙂
Thanks for the wonderful sobering post Mr Dorf. I’ve been reading countless articles and blog posts and books on lean startup, customer development, and busiess models, and you message above I think sums what they’re all trying to get across. By the way, I was the first to buy your and blanks recent text at the Stanford bookstore (if you recall I had emailed you about it days prior to the release). What a great text. Thank you both!
[…] they don’t talk to their customers early enough in the start-up process. Read the post here. This entry was posted in Blog by Joy Fisher. Bookmark the […]
Harvard Business Review magazine had an interesting quote from Albert Einstein in a recent article entitled “Are you solving the right problem”.
Einstein said
“If I were given one hour to save the planet, I would spend 59 minutes defining the problem and one minute resolving it.”
I wouldn’t underestimate the immense value of solving a problem felt by the people in the building – or better yet, in the room.
Brilliant distillation of what really matters.
Clayton Christensen gave this talk last year at the business of software conference.
http://businessofsoftware.org/2011/10/clayton-m-christensen-at-business-of-software-2011-how-to-create-new-growth-businesses-in-a-risk-minimizing-environment/
In it he gives a lot of great insight. Here are some quotes.
“The customer rarely buys what the company thinks it is selling him”
” The probability that a software product will be successful is somewhere near zero if the concept was developed in a company that has decided what the customer wants.”
“You develop a product and then you find out that they don’t buy it, and so then you have to hire a marketer, and the reason you have to have a marketer is that you are trying to convince the customer that they need to buy the product that you decided they need.”
“If instead you try to understand the job that the customer is trying to do, then you don’t need much marketing, because the customer will pull the product into their lives and tell their friends about it. …. It’s understanding the job that the customer is trying to get done that is in short supply and it is not the ability to make products.”
“The (technical) people working in the labs need to be out in the world watching what people are trying to do and doing it better. Instead what you see is failure after failure.”
“When you develop a product that does a job well, the customers are quite happy to pay a premium price”
“If I try to listen to the customer, it will mislead me. I need to understand the job that he is trying to get done.”
In Clayton Christensen video above at the 39 minute mark he states.
“Is innovation a crapshoot or is it more predictable….. What we decided is that the customer is the wrong unit of analysis when you are trying to develop the new product. And the way we have taught marketing is that you should always listen to your customers, and we have concluded that that is wrong.”
He goes on to say that you need to understand the job that the customer is trying to get done. The customer will hire products (purchase products) that helps them get the job done.
“Understanding the job to be done is really critical in order to succeed with the new product.”
I think it also depends on the level of expectation and what’s the goal with the startup. I recently launched a website. No business plan, I’m the boss, the employee.I’m using my own money because is something I wanted to do and if the website is successful is great. I don’t have high expectation, I don’t have the pressure of having to meet goals when you have people that invested money in your idea(s)
good points henry, am noticing that ‘lifestyle business’ is the majority of startups, maybe a 5 page plan is good, something you can do in an afternoon but being market responsive is also great
I have seen people have success with plan/no plan, with outside investment/none etc., just depends on your style.
How does one talk to customers when there is no patent protection on a product yet? It’s only natural to want to protect yourself from people who may pursue a similar version themeselves (especially when your customers are businesses). How do I discuss my vision clearly to adequately gather feedback and fine tune my value hypotheses without leaving myself open?
Bob is spot on. At least from my point of view as an Entrepreneur headquartered on Nigeria and serving four countries in Sub-Saharan Africa. I had the honor of meeting Bob at CBS in January 2013, when I was invited to co-instruct at the Lean Launch Pad block week class. A man of few words and great empathy for his students. He is more of a doer than a talker, but his few words, when spoken are golden.