nyu startup school_getting to product-market fit part i

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Startup School: Getting to Product-Market Fit - Part I

Lindsey Gray Senior Director, NYU Entrepreneurial Institute Adjunct Faculty, Tandon School of Engineering Instructor, NSF Innovation Corps (I-Corps) September 20, 2016

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75% of startups fail to return investors capital Shikhar Ghosh Harvard Business School

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So why do so many startups

fail?

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Top 12 Reasons Startups Fail

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Top 12 Reasons Startups Fail

42% #nyuef

cite lack of market need

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Need to do this before finishing designing and/or building your product/service

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What makes for a successful startup?

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(At least) Three Parts to Building a Successful Startup 1.  Advancing the product/service

2.  Beginning to build a team

3.  Finding a repeatable business model

u  Most focus on #1 and/or #2

u  Successful efforts require all three

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Evidence-based Entrepreneurship (aka the Lean Startup)

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All I Need to Do is Make the Forecast

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“For every one of our

failures, �we had

spreadsheets that looked awesome!”

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“Everyone has a plan until they get punched in the face!”

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Planning comes before the plan

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“In preparing for battle I have always found that plans are useless, but planning is indispensable.”

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Business Model Canvas The Business Model Canvas

Revenue Streams

Channels

Customer SegmentsValue PropositionsKey ActivitiesKey Partners

Key Resources

Cost Structure

Customer Relationships

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What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive?

is your business moreCost Driven (leanest cost structure, low price value proposition, maximum automation, extensive outsourcing)Value Driven (focused on value creation, premium value proposition)

sample characteristicsFixed Costs (salaries, rents, utilities)Variable costsEconomies of scaleEconomies of scope

Through which Channels do our Customer Segments want to be reached? How are we reaching them now?How are our Channels integrated? Which ones work best?Which ones are most cost-efficient? How are we integrating them with customer routines?

channel phases1. Awareness

How do we raise awareness about our company’s products and services?2. Evaluation

How do we help customers evaluate our organization’s Value Proposition?3. Purchase

How do we allow customers to purchase specific products and services?4. Delivery

How do we deliver a Value Proposition to customers?5. After sales

How do we provide post-purchase customer support?

For what value are our customers really willing to pay?For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues?

For whom are we creating value?Who are our most important customers?

Mass MarketNiche MarketSegmentedDiversifiedMulti-sided Platform

What type of relationship does each of our Customer Segments expect us to establish and maintain with them?Which ones have we established? How are they integrated with the rest of our business model?How costly are they?

examplesPersonal assistanceDedicated Personal AssistanceSelf-ServiceAutomated ServicesCommunitiesCo-creation

What Key Activities do our Value Propositions require?Our Distribution Channels? Customer Relationships?Revenue streams?

categories ProductionProblem SolvingPlatform/Network

What Key Resources do our Value Propositions require?Our Distribution Channels? Customer Relationships?Revenue Streams?

types of resourcesPhysicalIntellectual (brand patents, copyrights, data)HumanFinancial

Who are our Key Partners? Who are our key suppliers?Which Key Resources are we acquiring from partners?Which Key Activities do partners perform?

motivations for partnershipsOptimization and economy Reduction of risk and uncertaintyAcquisition of particular resources and activities

What value do we deliver to the customer?Which one of our customer’s problems are we helping to solve? What bundles of products and services are we offering to each Customer Segment?Which customer needs are we satisfying?

characteristicsNewnessPerformanceCustomization“Getting the Job Done”DesignBrand/StatusPriceCost ReductionRisk ReductionAccessibilityConvenience/Usability

typesAsset saleUsage feeSubscription FeesLending/Renting/LeasingLicensingBrokerage feesAdvertising

fixed pricingList PriceProduct feature dependentCustomer segment dependentVolume dependent

dynamic pricingNegotiation (bargaining)Yield ManagementReal-time-Market

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So what do we do?

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What’s a Startup?

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A temporary organization designed to search for a repeatable and scalable business model

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What is a business model?

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What is a Business Model?

How a company creates value for itself

while delivering products or services for

customers

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A temporary organization designed to search for a repeatable and scalable business model

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The Business Model Canvas

Revenue Streams

Channels


Key Resources

Cost Structure





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Hypothesis

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More than half of your assumptions are wrong!

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Customer Development How you search for the business model

Test assumptions about customer needs/problem & develop MVPs

Seek validation that people are interested in your product/ solution

Begins to build demand & improve efficiency of customer acquisition

Drive growth aggressively & execute business model

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“You can’t just ask customers

what they want and then try to give that

to them.”

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“New ideas come from watching something, talk(ing) to people, experimenting, �asking questions �and getting out of �the office!”

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“Great founders

never put anyone

between themselves

and their users.”

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Revenue Streams

Channels


Key Resources

Cost Structure





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Hypothesis

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Hypothesis Hypothesis

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Customer Discovery u Apply the scientific method to

business model development

Modify hypothesis

Observe phenomena

Formulate hypothesis

Test hypothesis via rigorous experiments

Establish theory

based on repeated

validation of results

PIVOT!

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First test the problem, then test the solution

Customer Development

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Value Proposition What Problem Are You Solving?

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Value Proposition

u describes the benefits customers can expect from a bundle of products and services

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Customer Segment Who Cares?

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Customer Profile

u Who are they and why would they buy?

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Problem-Solution Fit

Fit

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www.youtube.com/watch?v=LkdJwYQIR2o

But Facebook…

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Value Proposition What Problem Are You Solving?

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Key Questions for Value Prop u  Problem Statement: What is the problem?

u  Technology / Market Insight: Why is the problem so hard to solve?

u  Product: How do you solve it today?

u  Competition: Who is delivering that solution?

u  Utility: What level of improvement in efficacy/safety/cost/etc. is needed?

u  Market Size: How big is this problem?

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Customer Segment Who Cares?

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Define Customer Archetype u  Who are they?

o  Position / title / age / sex / role

u  How/where do they buy? o  Discretionary budget (name of

budget and amount)

u  What matters to them? o  What motivates them?

u  Who influences them? o  What do they read/who do they

listen to?

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Customer Profiles Describe the person: name, age, relevant personal info Image

Jobs To Be Done Existing Solutions

How They Buy

Pains

Gains

Influencers

Barriers

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put yourself in the customers’ shoes

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What is your potential customer trying to get done?

Jobs to be Done

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…they want a quarter-inch hole!"

“People don't want to buy a quarter-inch drill…

SOLUTION (WHAT)

JOB (WHY)

Innosight LLC

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“Make me efficient at my work”

FUNCTIONAL

“Convey my professional status”

SOCIAL

“Make me confident that I can get the job

done”

EMOTIONAL

“Help me perform like a professional”

JOB

•  Valueà demonstrate my ability to recognize value

•  Prestigeà show others that I focus on quality starting with my equipment

•  Confidenceà ensure me that I can count on my equipment

•  Versatilityà give me the ability to work in different environments

•  Powerà give me the ability to cut through thick/dense material

•  Speedà help me get the project done quickly

Innosight LLC

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Guess the product from the job

I want to feel confident when having a

close conversation

I want my mouth to feel refreshed

I want to kill the germs that cause bad breath

I want to show that I have the latest gadget

I want to be able to get information easily

when on the go

I want to kill small snippets of time

productively

I want feel ‘in-the-know’ about things happening

in my social circle

I want an efficient way to share my pictures

with all my friends and family

I want a way to reconnect with friends I haven’t talked to in a

while

I want to feel like I’m buying the best for my

family

I want to be socially conscious

I want access to high-quality grocery products

I want the convenience of shopping online

I want to be able to decide how much I will

pay for a product

I want an easy way to sell things I no longer

need

Innosight LLC

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Who’s the Customer?

User

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User Economic Buyer

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User Influencer Recommender Decision Maker

Saboteur Economic Buyer

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How Do They Interact to Buy?

u  Organization Chart

u  Influence Map

u  Sales Road Map

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“Customer” Ecosystem of people you need to understand, satisfy and appeal to in order to get them to buy your product

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Technology Lifecycle Adoption Curve

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Who wants… u A combined phone, internet

browsing & mail device with o No copy & paste o No physical keyboard o Only 2G data speeds o No corporate email o No 3rd party apps o Only works on one carrier

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Look familiar?

0

20

40

60

80

100

120

140

160

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Year 1 (2007-08)

Year 2 (2008-09)

Year 3 (2009-10)

Year 4 (2010-11)

Year 5 (2011-12)

Year 6 (2012-13)

Year 7 (2013-14)

Uni

t Sa

les

(mill

ions

)

Apple iPhone Sales Since Introduction

Enthusiasts

Visionaries

Pragmatists

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What’s your point? I have two!

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1. As a startup, you are not capable of serving the mainstream market With your half-baked product, small staff & non-existent sales & market budget

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2. There is no point in building the features you will need when you have a million users Optimize your product for the immediate stage of growth

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“Even though you target just those few potential customers today there is no law that says you are limited to those customers for eternity.”

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Product / Solution Fit

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I’ve figured out who I’m selling to and what pain point I’m solving!

I’m ready to start building and

selling… Right?!

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? ✔ ✔?

?

?

? ? ?

Not so fast!

You can’t have a valid business until you test

both sides of the canvas!

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Channels How does your product get to customers?

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Customer Relationships How do you Get, Keep and Grow Customers?

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Revenue Streams How do you make money?

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Key Activities What’s Most Important for the Business?

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Key Resources What are your most important assets?

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Key Partners Who are your Partners and Suppliers?

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Cost Structure What are the Costs and Expenses?

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Revenue Streams

Channels


Key Resources

Cost Structure





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9 Guesses

Guess

Guess

Guess

Guess

Guess

Guess

Guess

Guess

Guess

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But, Realize They’re Hypotheses

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Customer Development How you search for the business model





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Customer Discovery The search for Problem-Solution Fit





PSF

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Problem-Solution Fit “Can you identify and validate a problem or need in the market that enough people care about?”

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“Do you have a feasible solution (innovation) for meeting this problem or need?”

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Customer Validation The search for Product-Market Fit





PSF PMF

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Product-Market Fit “Can you build and deliver a product/ service that satisfies the customer problem or need?”

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“Do the product / service features deliver value (alleviate pain, create gain) to the customer?”

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Customer Creation The validation of Business Model Fit





PSF PMF BMF

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Business Model Fit “Can you build and validate a repeatable and scalable business model?”

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Company Building The execution of Business Model Fit





PSF PMF BMF

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Case Study Exercises

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Revenue Streams

Channels


Key Resources

Cost Structure





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9 Guesses

Guess

Guess

Guess

Guess

Guess

Guess

Guess

Guess

Guess

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www.youtube.com/watch?v=Zd0Utfu_4MM

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Define Hypotheses

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1

What must be true about for this venture to succeed? What are the ‘deal-killing’ assumptions?

Hint: initially they should focus on VP and CSs

ü  Recording attendance today is tedious and inefficient for teachers

ü  Teachers want two-way communication with parents, and are dissatisfied with existing tools

ü  Teachers bear the burden of tracking and reporting on student tardiness and absenteeism

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Design an experiment

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2

Who should I talk with to validate/invalidate that my ‘deal-killing’ assumptions are correct? Where can I find these people?

WHO?

ü  Teachers – public school

ü  Teachers – private schools

ü  Principals (private/public)

ü  Grade school teachers

ü  High school teachers

WHERE?

ü  Urban schools

ü  Suburban schools

ü  Your kids’ teachers

ü  Your teacher friends

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Conduct a test

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3

What can I ask during customer interviews to test my assumptions?

ü  How do you record attendance currently?

ü  How long does it take you to record attendance? What works well about this? What doesn’t?

ü  How often do you communicate with your students’ parents? What is typically the reason for this communication?

ü  How do you keep track of how many days a student has been late or absent? What do you do with this information?

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Extract insights 4

What did you learn from your interviews that will inform your business model?

ü  Teachers currently record attendance with pencil and paper. They do it once to turn into their administrator, and then a second time for their own records. It doesn’t take long to do, but it’s annoying to have to do it twice.

ü  The main way teachers communicate with parents is at parent-teacher conferences, which happens for the first time a couple months into the school year. When there’s a severe problem they try to get their phone number so they can call, which sometimes is effective and sometimes not.

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Extract insights 4

What did you learn from your interviews that will inform your business model?

ü  Teachers would like to be able to communicate with parents more frequently about issues they see, but they’d need easier access to the right contact information.

ü  Some teachers have access to an iPad in their classroom, but not all. Many use their own personal smart phone for communications with parents. We got a mixed response when we asked teachers if they’d be comfortable giving parents their personal cell phone number.

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Key questions to ask

u What are your riskiest assumptions?

u How can you best test them?

u Do these tests validate or invalidate what you thought? What needs further discovery?

u What new questions arose from these discussions?

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Increase Likelihood of Success u  Get customer feedback before building &

launching your product

u  Launch products that customers actually want, more quickly & cheaply

u  Secrets of success: §  Experimentation over elaborate planning §  Customer feedback over intuition §  Iterative design over sequential design

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Getting Started Cheat Sheets

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TOTAL

Selecting Your Initial Target Customer Segment How to use this guide: Identify ≧3 potential customer segments that you believe are most likely to be your early adopters/enthusiasts, and list them across the top of each column. Identify ≧5 criteria (excluding market size) that you believe will determine your success, and list these on the left most column of each row. Honestly rate how you believe you can serve each segment today on a scale of 1 to 3, where 3 is best. Sum up your ratings at the bottom of each column. Put the segment with the highest score in the Customer Segments box on your Business Model Canvas.

Segment Criteria

Draw your Customer Ecosystem

Customer Archetype Profile

Describe the person: name, age, relevant personal info Image

Jobs To Be Done Existing Solutions

How They Buy

Pains

Gains

Influencers

Barriers

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Who are your customers? Jobs To Be Done: Gains:

Pains:

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What value do you provide? Gains:

Pains:

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What product or service?

Solution:

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Helping startups start up

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Tuesday 9/27, 4pm Getting to Product-Market Fit Part II

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1 Next week’s Startup School:

bit.ly/nyustartupschool

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2 Blackstone Launchpad coaching session

Say you went to Startup School!

entrepreneur.nyu.edu


3 NYU Prototyping Fund

Free $$$ to build your prototypes!

bit.ly/PrototypingFall16


4 $300k Entrepreneurs Challenge Team Hunt

Meet a teammate!

bit.ly/300KTeamHunt

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Questions?

[email protected] @nyuentrepreneur entrepreneur.nyu.edu 16 Washington Place

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