Starting Up: From “No Idea” to Product-Market Fit in 4 Steps.
You want to start-up a venture but have no idea how to get started? Here are the main steps on the road to success!
We’ll go from what to do when you don’t have an idea yet, to validating your new idea, building proofs of concepts and MVP (minimum viable product), and eventually reaching product-market fit and getting traction.
1. Let’s start at the beginning: ideation.
The ideation part is probably the most tricky one because it’s all about creativity. Make sure you start by identifying a need, ie a problem worth solving, preferably one that someone somewhere would be happy to pay for! Then you can ideate solutions for that problem (rather than retro-fit problems to an existing “solution”). The benefit is clear: if there’s a problem to solve, there’s a market to conquer.
When ideating solutions about how you are going to create value for your potential customers, think about about why YOUR solution? Is it better, faster, cheaper, simpler than the existing alternatives? What makes it unique, and therefore valuable?
Value creation will be one of the foundation stones of your business model, along with value delivery (commercialisation/go-to-market) and value capture (monetisation). By the way, don’t just innovate in your product, also innovate in your business model if you can!
Indeed, a product / service idea is not the same as a business idea: the starting point is the problem to solve (the need), not the product itself (which is HOW to solve the problem, meet the need and create value). So make sure you work on your business model as well and conceive your product / service as part of that business model:
•What problem do we solve?
•For whom (TAM)?
•What makes us better?
•Would they pay for it?
Now to the meaty part: a couple of tools to help with ideation.
The “How Might We” method is useful to highlight priorities.
How might we:
1: Using some feedback you may already have, come up with statements that tackle one part of the problem, and frame them as “How might we …”. Put each on a post it note.
2: Group notes into common themes.
3: This should give you some focus on what areas you could start tackling first.
Journey mapping is very useful for understanding the customer /user experience. You need to consider your buyer personas as part of the journey, and cover the before / during / and after purchase: research / purchase / experience. This is a huge, collaborative task, but giving it a go early on will help you put yourself in the shoes of your prospective customers and identify any purchase trigger or barrier.
Journey map:
1: Use post-it notes to identify every step of a customer researching buying or interacting with your solution. In B2B, you will need to consider the various stakeholders (as “personas”).
2: Use this to identify key moments your customers will interact with you and how.
3: Test changes to those interactions.
Use these creative methods to get a whole bunch of ideas. In the next step, we’ll see how to validate and prioritise theses ideas (also called “concepts” when formalised).
2. Yes, but, can we do it? Proving the concept.
Ok, you now have an idea, great! Now how do you build confidence in what you are doing, enough confidence to reassure investors and yourself?! You build a proof of concept (PoC)…
First of all, there are 2 main types of PoCs:
- technical PoC: does the product/tech work?
- commercial PoC: will they buy it? Does the product meet the required customer needs and are they willing to pay for it? In other words, can we make money?!
The PoC is a critical milestone for capital-raising, starting with the technical one: it’s the proof the tech works and therefore it validates moving to the next milestone (usually the commercial PoC). In other words, the Proof of Concept is used to verify aspects of the problem, idea, or, theory.
- In software this could involve paper based diagrams, designs, wireframes, even video demos
- Most common tech PoCs are Prototypes: Used to show how a solution might work, eg User flows, clickable designs.
About prototyping:
What can we prototype
•New product
•New functionality
•New process / workflow
•New experience
How much to work on at a time?
•Just one feature / workflow — this is critical to get actionable feedback
The process
•Iterate and increase fidelity as you progress.
•Use feedback at each iteration to inform your next step..
•Progression from low-fidelity (LoFi) to high-fidelity (HiFi)
-Lo-Fi: Paper and pencil sketches
-Medium-Fi: Wireframes, Workflows, Dummy text (Lorem Ipsum)
-Hi-Fi: Full visual designs (Almost exactly how the final product will look.)
Consider: What type of prototypes can you deliver at each fidelity stage?
A couple of tips:
Think about your product idea: how can you prove (cheaply and quickly) the tech would work?
Put yourself in the shoes of an investor: what proof would they need to feel confident?
3. Making it real: from PoC to MVP.
Once you’ve got a PoC, you want to start building the commercial product. Unless your product is dead simple (and your innovation resides somewhere else in the business model), you will build a Minimum Viable Product (MVP).
A Minimum Viable Product (MVP) is the simplest version of a product from a technical point of view: the bare-bone version in terms of functionalities, that still provides value to a customer. It is your first customer-tested version and therefore should also enable feedback on the product to be given. The feedback is used to inform future product development (iterations).
The development path towards building a MVP involves developing and seeking feedback on proof of concepts / prototypes and iterating the process:
- Between your PoC and MVP, there are usually several technical iterations to build the various functionalities of the product: these should be tested internally, not by customers. The customer will try the MVP, not the previous versions. At MVP stage you will need something that is not overly well built but built well enough that the user experience is good enough and works as expected. You know you have an MVP if you think it’s worth paying for.
- When the product is changed in an iteration, the business model might need to pivot.
- Challenge yourself to not spend too much money (aka boot-strapping): The best time to spend your capital on product development will be once your MVP is ready and you get concrete, actionable customer feedback. You should spend proportionally to your level of confidence: low confidence in the next step, then spend little on several routes to “test and learn”; high confidence, inversely make sure you spend enough to deliver the next version. You’ll need money to build the next versions until you reach product-market fit (PMF).
- Familiarise yourself with agile practices if needed: short, fast “sprint” (eg 3 weeks) focused on a specific milestone (eg new functionality). You want to iterate the “test / validate” process again and again.
- Think about the most minimal part or process you can start from. Again challenge yourself to not think about too many features or processes. Prioritise the key features: it’s not just a lean start-up, it’s also a lean product!
- Nothing has to be built perfectly, use manual methods in the background to test features or processes first.
Think about the MVP as something that could –and should- be sold: maybe the design is not great, but the functions –and therefore the value- are available. At this stage, you want to know whether you’re solving the customer’s problem / need, not whether they like the blue background better than the green one.
Here is an example from a social startup called SameView (www.sameview.com.au)
4. The holy grail: product-market fit.
A Minimum Viable Product (MVP) is just the first step to success: your ultimate goal is reaching product-market fit.
Product-market fit is when your product / service is optimised for your market, not just technically, but commercially: you have reached PMF when you have maximised customer acquisition / retention.
To get from MVP to PMF, you need to get as much actionable feedback as possible from your customers / users.
To improve the MVP, we’re going to seek feedback from two types of interviews:
- Co-creation interview:
An interview where we are aiming to design a solution WITH someone and not FOR someone. To do this we need to have conversations that are open, respectful, without judgement or bias, and investigative. These interviews are all about listening and provide you with deep insight into the problem you are solving, your stakeholders, their environment, and also their thoughts on your solution.
You need to be VERY specific about what you want to know, so that the feedback is as actionable as possible: don’t just ask WHAT they like / dislike, but also WHY and what would be required to make it better.
Look for common strengths and pain points in order to prioritise.
2. Product usage and experience testing: “looking over the shoulder”
Focused on putting someone through your product or service and seeing their real life reaction to it. You get what they are thinking as they try your solution, and through this process you can test whether your solution is working like you thought it would. It helps you to focus on what you need to work on next, especially if you have a technology solution, and helps smooth the user experience.
Look for easy wins in improvements to your product and prioritise other findings to inform future rounds of development.
Then, to know whether you have actually reached PMF, there are in my experience 2 main data-driven methods to measure whether you have reached your goal:
- The “Net Disappointed Score”
It all starts with a survey containing a few questions to your existing product users:
1. How would you feel if you could no longer use [product xx]:
•Very disappointed
•Somewhat disappointed
•Not disappointed
2. What type of people do you think would most benefit from [product xx] ?
3. What is the main benefit you receive from [product xx] ?
4. How can we improve [product xx] for you?
Benefits: actionable feedback and simple to use. Helps prioritise key features and focus on core customers
Repeat the survey after each product update, to track NDS score improvement.
Target: at least 40% of “very disappointed” will be a good indicator of PMF. You’d need at least 30 individual respondents in most cases.
- The “Cohort Analysis”
A cohort is defined as a group of customers buying the same version of the product: Your customers trying your MVP will be your first cohort, ie your benchmark. Any product change and the related group of customers represent a new cohort.
It’s a great tool but you need actual sales data to do the analysis.
Indeed, you need to track a few key measures about your sales funnel for each cohort:
- What is your acquisition %
- What is your retention (repeat business) % (over the relevant time period)
- What is your CAC (customer Cost of Acquisition)
- What is your LTV (customer Life Time Value)
2. Each product update creates a new customer cohort.
3. You want to compare cohorts by cohort over the same time period (eg after 6m, after 12m, etc) for the impact on the above KPIs of the product updates: has our acquisition % improved? Etc.
4. When the curve flattens and there is no further improvement, you have optimised your product. Assuming the long-term CAC is below your long-term LTV, your business model should become profitable. If your CAC is still forecast to be above your LTV, your need to review product / pricing / go-to-market / etc, until you have a path to profitability.
Benefits: the best, data-driven proof of traction for investors
- Shows clear progress
- But requires a lot of data and can take time (eg retention %) if the sales cycle is long: Consider intermediate milestones as proxy to retention (for intent to renew) if needed.
You should now have a pathway from ideating a solution, to building your first proof-of-concept and MVP, to thriving towards product-market fit. Be aware that very few start-ups make it to that stage, and even fewer become unicorns. But having an idea of the key steps -even at high level as in this article- will save you time, effort and money, and -hopefully- help you find the holy grail: the product-market fit!
Good luck with your venture.
