Monday, July 24, 2017

Product Management 101 - Customer validation is the key

Recently, I was having lunch with a co-founder of a startup in Bangalore. They have a vision which sounds good on the surface: Provide data loss protection on Cloud. Though this sounds as such a old & proven idea, they have a very good secret sauce which gives them a unique value proposition: Security, Cost benefits & much better RPO/RTO than competition.

Like most entrepreneur, he started out by validating his product idea with customers. Starting with customer survey, asking customers about their pain points and asking them:  "If this product solves your problem, will you buy it?"

Customer validation is a good point to start, but one must also be aware that such a survey can lead to several pitfalls.

  1. Customer needs could change with time, and are no longer interested when the product is launched.
  2. Customer just expressed his 'wants' and not his 'needs', and may not pay for the actual product.
  3. Customer has no stake in the product. Just answering few questions was easy - there was no commitment or risks.

All this risks imply that customer validation may result in false positives.

False positive is a known risk factor in new product development and startups often take such risks. In case of my friend's startup, he took that risk and decided to invest in developing a prototype.

Several months have gone by and his company is busy building the prototype and his biggest fear is that customers may not embrace his product and is constantly changing what should be his MVP - Minimum Viable Product.

What is a Minimum Viable Product?

A minimum viable product (MVP) is the most pared down version of a product that can still be released. An MVP has three key characteristics:

It has enough value that people are willing to use it or buy it initially.
It demonstrates enough future benefit to retain early adapters.
It provides a feedback loop to guide future development.

The idea of MVP is to ensure that one can develop a basic product which early adapters will buy, use & give valuable feedback that can help guide the next iteration of product development.

In other words, MVP is the first version of a customer validated product.

The MVP does not generate profits, it is just a starting point for subsequent product development - which in turn results in rapid growth and profits.

Customers who buy the MVP are the innovators & early adapters, and no company can be profitable serving just the early adapters. But a successful MVP opens the pathway towards the next iterations of the product which will be embraced by majority of customers: 'Early Majority', 'Late Majority' and 'Laggards'.

MVP is also expensive for startups

For a lean startup, developing a MVP can be expensive. MVP is based on: Build -> Measure -> Learn process - which is a waterfall model.

There are two ways to reduce risks associated with developing an MVP. One way to reduce risks is to avoid false positives.

While conducting market research during customer validation process, one must ensure that customer is invested in this product development.

At the first sight, it is not easy to get customer to invest in a new product development. Customers can invest their Time, Reputation &/or Money.

By getting customers to spend time on the potential solution to their problem is the first step.

Second step would be get them invest their reputation. Can customer refer someone else who also has the same problem/need? Is the customer willing to put his name down on the product as the Beta user? Getting customer invest their reputation would most often eliminate the risks of false positives.

One good way to get customers invest their reputation is to create a user group or community - where customers with similar needs can interact with each other and new product development team - while helping new product development.

In case of B2B products, customers can also invest money in new product development. Getting customers to invest money is not so tough. I have seen this happen in several occasions. I call this co-development with customers (see my blog on this topic)

Kick Starter programs have now taken hold and today startups are successfully using kick starter programs to get customers invest money in their new product development.

Accelerating the Development Cycle & Lowering Development Costs

A lean startup should avoid developing unwanted features.

Once customers are invested in this new product, the startup will usually start developing the product and march towards creating the MVP.  However, it is common to develop a product and then notice that most customers do not use 50% of the features that are built!

Lean startup calls for lowering wastage by not building unused features. The best way to do this is to run short tests and experiments on simulation models. First build a simulation model and ask customers to use it and get their valuable feedback. Here we are still doing the Build -> Measure -> Learn process, but we are doing it on feature sets and not the entire product. This allows for a very agile product development process and minimizes waste.

Run this simulation model with multiple customers and create small experiments with the simulation model to get the best possible usage behavior from customers. These experimental models are also termed as Minimum Viable Experiment (MVE), which forms the blue print for the actual MVP!

Running such small experiments has several advantages:

  • It ensures that potential customers are still invested in your new product.
  • Helps develop features that are more valuable/rewarding than others.
  • Build a differentiated product - which competes on how customers use the product, rather than having the most set of features.
  • Helps learn how users engage with your product.
  • Help create more bang for the buck!

Closing Thoughts

In this blog, I have described the basic & must-do steps in lean product development, which are the fundamental aspects of product management.

Customer validation is the key to new product success. However, running a basic validation with potential customers runs a big risks of false positives and investing too much money in developing the MVP.

Running a smart customer validation minimizes the risks while creating a lean startup or lean product development. A successful customer validation of a solution helps to get paying customers who are innovators or early adapters. This is first and most important step in any new product development - be it a lean startup or a well established company.


AAJ said...

Nice details Arun....keep sharing

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