Customer, market and business validation for early-stage startups

Customer, market and business validationFor early stage startups

+ case study: TransferWise ~ the mission-driven startup

Hi, I’m Jeff!

Integral Designs Bell Canada ING

Bank Skype → Microsoft TransferWise

MSc - Info

ScienceBachelors - Business

4 steps to world domination

Your customer

Your Business

Scale your

startup

Your Market

Valid

ate

Case StudyGrow

Validate Your Customer

Proposition

How many startups START.

Intuitive understanding of user needPassion for particular technologyPropose solution

= Successful startup?

How many startups STOP.

Intuitive understanding of user needPassion for particular technologyPropose solution

= Successful startup?

← Not tested. ← Customer’s don’t care.

← Not based on actual. customer needs.

← Not as likely.

Jobs to be done (JTBD)Understand Customer + Situation“Your customers have a job and they’re hiring your app to solve it”

JTBD: weather apps, iPhone apps, SaaS/Services

Learn by focusing on JTBDHow valuable is getting that job done for this type of person?How many people have this job?How often do they have this job?How is this job currently being done?

JTBD: more info/exercises

← Willingness to pay.

← Market size.← Usage frequency/pattern.← Actual competition.. (usually status quo).

Problem interviewsYour goal is to learn, not sellStart before you build anything15 mins per interview Do 20-60 of them

Learn more: Jeff’s highlights, from this book

Demographics - who are they?Tell a story - that covers several problems they might haveProblem ranking - which problem is most painful?Explore problems - go in depth into each problem they haveHook & Ask - keep them engagedDocument - take 5 mins, write down

Structure: intro, demographics, story Demo, as real as possible, iterateTest price, don’t ask priceRaise friction, don’t lower it. Find early adopters. Be the prize.

Solution interviewsYour startup goal is to build the simplest product that. solves a real problem.Validate your understanding of (1) customer, (2) product, (3) market propositionVisual demo of an MVP for early adopters20-60 interviews neededThe best blog post on pricing

...but...You know what customers need

It takes too long

It’s a waste of time

...but...You know what customers need

It takes too long

It’s a waste of time

← No you don’t, unless you’ve. talked to enough of them, in a. structured way.

← it’s nothing compared to.building. something for 6 months and discover. nobody will buy it.

← not if you learn what to build. and who will buy it.

Validate Your Business Idea

Learn More: Wiki, Book

Increase probability of success by understanding your key risks

Start with the big boxesValue proposition, customer segments, key partnersStart with whatever is most risky, and figure out what you need to learn to remove that risk.

Ask the hardest questions first Who’s this for? Why do they need it?How much money do you need to make to break even? Will anyone actually pay for that?How much will it cost you?

✅ ✅ ✅

✅

❓ ❓

❓ ❓

Collect high quality data & validate it

Make it easy for potential customers to tell you what they want:

Currency “wishlist”

Research & exploreUse data where you can… but not as your only source

Ask “so what” and find the insights - who can we help?

Validate Your Market

Launching your MVPMinimum Viable Product

Be an order of magnitude better

You need to be way better than the alternative. Aim for 10X

10X faster10X cheaper10X more convenient10X easier to useor a combination

MVP Learning CycleMVP - does not mean “minimum viable piece of crap”

You need to understand who your customers are and what they want.

Can your customers use your product?

Can you do for the customer what you actually promise?

Is your MVP Successful?You need to understand your metrics and set realistic targets!This will help you define success and start iterating. For instance:

New usersNPSCancellationsConversion

See appendix for more KPI examples

Learn more about NPS, Product/Market fit

Achieving Market FitNPS! (Net Promoter Score)

ViralityComments

Work on the detractorsThen neutralsThen profit

Early startup KPIsDo Not Focus OnVanity metrics i.e. total registered users, total volume transferred

Getting statistical significance, split testing (A/B testing)More than a handful of metrics

Focus onThe 3 or 4 most important metrics (KPIs) that indicate your progress. Perhaps:Growth & conversionHow you’re adding valueHow much runway you haveHelpful to work backwards from

some target state (i.e. 10K new users) and validate how you get there

Learn more about KPIs in the appendix

Incubation & Achieving Market Fit

Listen to customersThey are usually your best critics and advisors!SurveysPhonecallsMeetings

The trick is not to give them what they want but what they need.

IterateUsually the one that iterates fastest wins!

Prioritising is they key hereMake sure you know what

you effect and measure it!

A/B testing

Scaling Your Startup

Your startup grows at. the rate. you learn.

You are here

You want

to get here

What is scaling?You have a mountain to climb to

achieve your vision - KPIs are your guideposts

Validation: It’s proof that you’re moving forward

Investors/valuations

You have a hard job

You have a limited opportunity to become successful

Your success depends on how quickly you learn.

Specifically, how quickly you learn how to deliver:

A product customers valueA sustainable business at scale

Practical tips for scaling

Marketing: Find scalable channels

Always be testingMassive differences between channels

Stand for something

Keep your growth sustainable

Return the savings to your customers or to growth

Setup backups

Renegotiate as you scale

Do less.

Time is your most limited resource. Make the hard choices.

Get the basics right

Full report here

Know your.Customers. and focus on the. customer job. Don’t die.

Set up your team correctly. (didn’t speak about but book recommendation . at the end).

The mission-driven startup

What is TransferWise today?

TRANSFERWISE WAS STARTED. TO SOLVE A PROBLEM.

WHY DO PEOPLE RECOMMEND OUR PRODUCT?

RATIONAL EMOTIONAL

PRODUCT BRAND

TO ACHIEVE ADVOCACY YOUR PRODUCT. NEEDS TO BE AN ORDER OF MAGNITUDE.

BETTER THAN THE ALTERNATIVE.

PRICESPEEDCOVERAGECONVENIENCE

BRAND

A BANK COULD HAVE STARTED TRANSFERWISE AT ANY POINT

IN THE LAST 100 YEARS

PRICESPEEDCOVERAGECONVENIENCE

A MOVEMENT

PEOPLE DON’T TALK ABOUT MONEY TRANSFER IN THE

PUB

GIVE YOUR CUSTOMERS. STORIES TO TELL.

PRICESPEEDCOVERAGECONVENIENCE

OWNERSHIPPRIDE

WHAT’S OUR MISSION?

EVANGELICAL CUSTOMERS.

INSPIRE PEOPLE WITH YOUR CAUSE AND YOU WILL CREATE

A MOVEMENT.

BIGGERTHAN YOUR STARTUP

AND WHAT’S THE RESULT?

EXPLOSIVE GROWTH

DRIVEN BY EVANGELICALCUSTOMERS

€1 BILLION IN TRANSFERS PER MONTH

€45 MILLION OF CUSTOMERS MONEY SAVED EVERY MONTH

TALLINNLONDON

TAMPA

NEW YORK

REVOLUTION SUPPORTED FROM

BUDAPEST

SINGAPORE

TOKYO

CHERKASY

SYDNEY

join us

Wrap up

Recap

Startups = learning: your job is to learnFocus on customer jobs to be done (JTBD)Problem interview → solution interview → build MVPDe-risk with business model canvasBe 10X better, focus on KPIs, and listen to your customers

From TransferWise: Cultivate a mission bigger than yourself

Learn more

Get in touchjeff.mcclelland@yahoo.caSkype: jrmcclelLinkedIn

Useful books you haven’t read yet

Lean startup, theoretical

Lean startup, practical

Bootstrapping (starting without

investors)

Founder equity that makes sense

These slides:

Questions?

APPENDIX: KPIsA/B Testing

What are well-defined KPIs?

You’ll learn faster with good KPIsUsing well-defined KPI’s help you learn faster:

Which products/features customers value

How effectively you’re scaling:marketing channels costsoperations

Which activities you should focus on

5 principles of well-defined KPIs

Directional & Not Ambiguous

IntuitiveImportant Reflects reality

In control of the group it’s measured against

if performance is good, it's good for the user and for the company

Can be explained why it's important for the user and to the company

Proportional to reality, dynamic enough to raise attention (not flat day-after-day), but not so jumpy that you can’t discern signal from the noise

higher or lower is always better all other things being equal

so that the team can commit to and be accountable for improvement (for targets in particular)

The best metric/KPI

We did another thing!

time

the bestmetric

We did a thing!

Metric is stable and flat when you’re not influencing it

KPI ExamplesGrowth - Signups, Downloads, New users, Active Users, Revenue, ProfitEngagement/conversion - feature use, frequency of use, # featuresQuality - Net Promoter Score (NPS), Customer Satisfaction (CSAT)Profitability/Sustainability/cost per user (marketing and/or OPEX)Churn - users stop using your product/service, downgradeVirality/network effects - spreading the word, building the network, market shareSpeed/Efficiency/Backlog/Queues/Time to X - efficiency of your machineRisk/Exposure - Leverage, FX Exposure, Value at Risk, SLA, cash/runway

Where does A/B testing fit in?

What are A/B tests?Everyone believes they know what’s right...but they’re often don’t. Everyone has biasesScientific experimentsA/B Tests can help you learnIf done well they give you unbiased “proof” of whether A is better than B

When should you use A/B testing?Work well for optimisation problems - small iterative learning

Product, pricing, messaging, support all possible

But even if you could, you sometimes shouldn’t as they can be expensive. Learning is expensive.

Get high volumes and be patient waiting on results

Don’t corrupt with other overlapping tests

Know basic statistics

AB testing 101

Are your results significant? tl;dr: no

It’s difficult to achieve statistical significanceYou need to:Plan/design in advancePick the right KPI(s) & scopeRandom or pseudo-random

allocation