This is the fourth blog in our Lean Startup Methodology blog series. In this blog series, we go over Lean Startup Methodology principles and show how these principles help startup founders tackle a variety of risks they face in each step of their startup journey. In the first blog, we started with defining what a startup is, and what the steps defined in the lean startup methodology are. In the second blog, we listed different types of risks a startup faces and how the lean startup methodology can help overcome them. In the previous blog, we discussed the problem risk, how founders should focus on solving the biggest problems their customers have first, and why it is so important to validate the problem, by validating customers and interviewing them. Also, it is important to focus on “early adopters” in the early stages to reduce the market risk.
As a startup in its early stages, it is crucial to validate your solutions as soon as possible. In our previous blog, we talked about how some startups spend time and resources building a product that the market may not respond to, and how a lean startup tests a concept with a basic version of the solution.
Validate Your Solution as Soon as Possible
In many cases, walking a potential customer through a prototype is much more valuable than pitching the idea to a potential customer. Also, only potential customer opinion matters. Speaking to customers is much more valuable than friends or even getting investor opinions. Opinions about the product from non-potential customers don’t matter, and in many cases are misleading.
There are many common mistakes in validating solutions. For example:
- Product X has problem Y, if I build a product Z that doesn’t have problem Y, customers will adopt my product. This is not a validation.
- A good product sells itself. Wrong!
MVP (Minimum Viable Product)
By validating the problem by releasing a solution fast, working with users to improve it, and releasing new versions, we see that founders can save their time and resources. What does an ideal MVP look like?
“The minimum viable product is that version of a new product that allows a team to collect the maximum amount of validated learning about customers with the least effort. “Eric Ries, 2009.
In building MVP you should be radically open-minded:
- Solution is not necessarily a product, it can be a service, especially in the early days.
- Remove any “nice-to-have” items from the MVP plan.
- The goal is learning.
“As you consider building your own minimum viable product, let this simple rule suffice remove any feature, process, or effort that does not contribute directly to the learning you seek.” – Eric Ries, 2009.
For tech startups, an MVP could start as simply as creating a landing page or registration form to do online marketing, before building a product. We see the increasing importance of building a contact list without product, fund-raising, and customer validation. This is a good way to get a sense of customer acquisition costs in the early stages.
The traditional way that founders begin is by building a self-serve product and putting it in front of customers to test. With lean startup methodology, the goal is to stay away from expensive methods that could potentially delay time-to-market. Several risks are to be avoided such as the risk of not targeting the right problem and the danger of running out of money before getting feedback. Imagine building a factory to manufacture an Apple Newton or a Segway, only to find out if anyone wants it. A lean startup alternative is to 3D-print a few prototypes first. Since planning for a one-shot experiment is too risky, founders may want to budget for at least one complete pivot down the line.
Market It First
A simple and risk-free start is to begin building a contact list without a product. A contact list, landing pages, registration forms or online marketing can be done relatively cheaply before building a product. Building a list is also valuable for fundraising, conducting surveys, and gathering feedback. It is a great way of gaining customer validation. Getting a sense of customer acquisition cost and conversion rate is made easier when the ball is already rolling by promoting “Sign up”, and “Buy Now” offers. In this stage, customers are being offered a solution and can purchase by entering a credit card information.
Though this initial step cannot fully cover the scope of the customer base, the basic solution can be validated through customer interaction. Some startups have come to realize the value of offering a prototype walkthrough. Providing a demo has the benefit of facilitating hallway testing (a usability test set-up in a high foot-traffic area). As the ongoing process of improving the solution by several iterations, the team can A/B Test the solution.
Improving the Solution
Part of improving your startup’s product comes from being aware of competitors, studying their reviews together with those of other existing solutions. What are your personal views on existing solutions on the market? What do you dislike? By taking notes of missing intuitive elements such as glitchy webpages, too many emails being sent, or difficulty sharing files across users, etc., founders can create a superior product.
Take notes of competitor’s existing shortcomings such as poor customer service or having an ineffective campaign that most likely has low conversion rates. Not only is it important to know the shortcomings but also their strengths. Take notes for example of the fact they offer a concierge service whereas you have little experience in this.
Provide a Solution as a Service first
Whether you are a founder of a hardware or software company, it may benefit your startup to use your expertise to offer clients Software as a Service (SaaS) to get immediate cash flow. A company can offer a marketing solution to clients by building landing pages for influencer marketing. This initial step offers the opportunity to offer a solution within a relatively short time. The company ApplyBoard started as a traditional student recruitment agency, and now they are on a mission to educate the world.
Several benefits come from this methodology. You might make some money, giving you the potential to sustain your startup longer until the time comes to secure funding. You build a potential returning-customer base. Having a solution on the market already working well, builds trust within your customer base, especially for self-served SaaS solutions. Furthermore, you can show early traction/revenue to investors.
Through these steps, you will have a better understanding of what solution works. You must be your first customer, and you get exposed to other challenges with the solution. Being involved, you have access to other aspects such as sales, marketing and operations earlier, to identify the risks. Does your solution have privacy issues? Are there legal issues or regulatory issues that are coming up?
Build a Pseudo-MVP Using Off-The-Shelf Products
Again, as the goal is to work lean, founders can use available resources to create a product with WordPress, Drupal, Joomla, Shopify, etc. Some common dilemmas founders face is that they think they have to rebuild everything and pay double the cost if they use this method. Often, marketing pages can stay in WordPress and work fine if the company decides to move off the platform. With data migration, you don’t have to migrate all data to a new platform. Several options are available for this issue such as customers building an account again on the new platform, migrating data for WordPress users manually, or writing a script.
What is important is that founders should do the math to calculate what would work best. What is the cost of an MVP with WordPress plugins: (E.g. $4k), as opposed to a custom MVP Cost (about $20k)? What is the cost of migration (E.g. $1,000)? By building a lean product, founders are able to save and sell before building a custom product. This is a crowdsourcing model.
Develop Your MVP
NuBinary is a Toronto based technology firm offering fractional CTO, product development, and Venture Jumpstart services. What is Venture Jumpstart? Through this program, you can benefit from an advisory and consulting service to help you build your technology product more effectively. Building a successful tech product is more than writing well-written code. As discussed through our Lean Startup blogs, it also includes:
- Product Development Process: Proper market positioning and commercialization.
- Competitive Analysis: Analysis of the competitors’ underlying technology and strength.
- Go-to-market strategy: Planning for pilot and alpha/beta testing. Creating reasonable traction for validation of product and technology.
- Positioning for dilutive and non-dilutive funds: Development process to minimize the risk and maximize the value that would unlock relevant grants and investment opportunities.
The CTO’s Role in Implementing a Lean Startup Method
In our next blog, we study the role of the Chief Technology Officer (CTO) in implementing the Lean Startup method. The CTO plays a key role in implementing this strategy in a company. The CTO plays the central role in defining the MVP. Because they are part of the executive team, there is a need for a good understanding between the CTO and the CEO on the direction of any project.
Learn more about how Nubinary can help your startup come to market through our Fractional CTO service, product development, and more. Visit https://nubinary.com/work-with-us.