YABOYA's Posterous

I covered the Customer Discovery flow for my web startup in Part 1. Here I%u2019ll be covering the next step: Customer Validation.

At the end of Customer Discovery you should have identified a customer problem worth solving and started building your solution (MVP). During Customer Validation, you%u2019ll test your finished MVP by selling it to earlyvangelists and in the process start developing a repeatable and scalable sales process.

While Customer Discovery was all about Problem/Solution fit,
Customer Validation is all about Product/Market fit.

The good news is that since web-apps are primarily distributed though a website, developing a repeatable and scalable sales process (conversion funnel) is easier for a web-startup, than say for Enterprise software, which usually requires multiple stake-holders, necessitates face-to-face selling, and eventually a sales force to scale. The bad news is that relying on just a website to sell is much harder %u2013 You only have 5-8 seconds to make an impression and it%u2019s harder to troubleshoot the sales process without face-to-face interaction with customers.

I%u2019ve found that %u201CGetting out of the Building%u201D is just as important during Customer Validation as it was during Customer Discovery.

Customer Validation: Have I built something people want?

Here%u2019s my Customer Validation Flow (you%u2019ll probably want to click to enlarge and skim it before reading on).

Click to Enlarge

The 3,000 Foot View

Before you%u2019re ready to sell, you have to distill down your product into a clear message (positioning), develop your sales materials (demo, website), identify your preliminary distribution channel, define your sales roadmap (conversion funnel), and of course, finish your MVP. You then test your finished MVP sales process by first selling face-to-face to earlyvangelists, then to web visitors. Product/Market fit is all that matters here so build/measure/test until you%u2019re fit.

Let%u2019s Get Ready to Sell

Articulate a Unique Value Proposition
Your Unique Value Proposition is a single, clear, compelling message that states why you are different and worth buying. This is what customers see first and is arguably the most important element on your landing page. A good starting point for crafting a compelling UVP is revisiting your prioritized list of problems from Customer Discovery and answering %u201Cwhat, who, and why%u201D.

Here%u2019s an example of the current UVP I am using for CloudFire:

Photo and Video Sharing for Busy Parents.
No uploading. No reorganizing. No hassle.

What is it? A photo and video sharing service
Who is it for? Busy Parents
Why is it different from what I use today? It%u2019s hassle-free: You don%u2019t have to upload, or reorganize your photos and videos.

For more on positioning, read/reread Al Ries/Jack Trout%u2019s classic book %u2013 Positioning: The Battle for Your Mind. Crafting a good UVP is hard work but don%u2019t worry about getting it perfect. Like all your earlier hypotheses, this one is a guess too that you%u2019ll be testing and refining later.

Build a Product Website
With your UVP crafted, it%u2019s time to polish up your MVP demo (from Customer Discovery) and start building your product website. While there are many ways to structure a product website, this is what I feel are the minimum set of pages to include:

Must-have pages:

1. Landing Page: State UVP, link to a demo, strong call-to-action
While there are other important elements like social proof and credibility that eventually need to go on your landing page, you may not have all of these day 1 and the UVP is the most important element to test first anyway.

2. Pricing Page: How much does the service cost?
This is where you detail your pricing. There are several tactics to lower buyer friction such as offering free trial periods, money back guarantees, deferred credit card payments, etc. Pricing is more art than science and you%u2019ll need to test what works best with your customers. I will, however, restate my position on NOT giving away the product for free. Anyone can give away a product. In return, you don%u2019t learn anything about your customer%u2019s willingness to pay.

There is a line of reasoning that suggests implementing a business model after product/market fit so as not to add friction. I believe that strategy is sound only if you built your product absent Customer Discovery and don%u2019t know if you have Problem/Solution fit. The point of Customer Discovery was finding a problem worth solving which involved determining a price customers would pay for a solution to that problem. Your job now is to test if that solution could be your solution. Lowering buyer friction though free trials and/or money back guarantees is all good and expected, but now is not the time to back down on pricing to make a sale %u2013 as appealing as it may seem. Even if you%u2019re considering a Freemium model, I would not offer a free plan till after Product/Market fit. You need to validate that your customers will pay for your premium plan first.

3. Sign up Page: Activate users
It goes without saying that the sign-up process needs to be as painless as possible so you can get customers activated and using your product as quickly as possible. Minimize steps, only ask for what you need, defer registration to later or never (lazy registration), connect with Facebook, etc. are all ways to reduce signup friction.

Nice-to-have pages:

4. About Us: Company positioning
People want to know who you are and what qualifies you to be offering this service. For inspiration, read Jason Cohen%u2019s: You%u2019re a little company, now act like one.

5. Tour: Features/Benefits, How it works?
Not everyone will view the demo. Our usability testing showed a large number of users abandoning a 2-min demo after 45 seconds. Some wouldn%u2019t even watch the video for fear of getting viruses on their computer (yes, probably not our target demographic). Having a separate tour page, also allows you to expand upon the other top problems you solve that may not be covered in your UVP.

Define Conversion Funnel
With your website pages created, you can now string them into a coherent sales roadmap or conversion funnel. Your conversion funnel should chart your web visitors from the moment they hit your landing page to the point when they trigger a revenue transaction.

Dave McClure has captured the essence of the conversion funnel with his AARRR startup-metrics which has 5 basic steps:

1. Acquisition: How do users find you?
2. Activation: Do users have a great first experience with your product?
3. Retention: Do users come back and use your product?
4. Referral: Do users tell others about your product?
5. Revenue: How do you make money?

Using the pages above, a typical conversion funnel would look like this:

Landing Page -> Pricing Page -> Signup Flow -> Invite/Tell a friend -> Upgrade Account

While it%u2019s possible to optimize steps (like combining the landing page with pricing/signup), at least during Customer Validation, I prefer to organize my conversion funnel for maximum learning versus maximum conversion. For instance, by keeping my landing page completely free of pricing, I can measure the effectiveness of the UVP without having to guess if price was a factor.

Select Customer Acquisition Channels
Customer acquisition channels for a web-startup range from free channels (blogs, SEO, referrals, etc.) to paid channels (SEM, paper ads, partners, etc.). The key objective during Customer Validation is NOT growing customer acquisition but validating product/market fit. You need to drive %u201Cjust enough%u201D traffic to learn and optimize for product/market fit. You can usually accomplish this solely relying on free channels, but it is okay to supplement with some paid channels (like SEM). However, be wary not to over-spend at this stage which is a common tendency.

I jumped into paid advertising (the expensive kind) too early with my last product BoxCloud. While it drove lots of good traffic, they all ran into the same product/usability roadblocks. I would have learned the same lessons with one-fifth the traffic and one-tenth the cost.

That said, free channels aren%u2019t really free either. They take time to develop. Now is the time to start investing in these (before you need them). Publishing your website publicly (versus hiding it behind a closed-beta) is already a good start as you%u2019ll start gathering some SEO value. Another channel worth developing is starting a blog. But don%u2019t make the mistake of simply touting your solution or rambling on about your product roadmap or release schedule. Nobody cares (not yet).

Customers care about their problems NOT your solution.
- Dave McClure (paraphrased)

Instead blog about the problem space you just validated in Customer Discovery. As Gary Vaynerchuck once said: %u201CIf you want to launch your own brownie, become an expert in brownies first%u201D. Earn trust. Be passionate.

This blog drives lots of traffic to my products %u2013 albeit indirectly. I started a more direct CloudFire blog here that needs more love.

Get MVP to %u201CIt Works%u201D
The final step to getting ready to sell is getting your MVP to a state where Earlyvangelists can use it. There is a common misconception that a MVP is a quick-and-dirty release simply engineered to solicit early feedback from customers. While speed is a key consideration in a lean startup, so is quality. The finished MVP needs to be a well executed implementation of the minimum feature set identified in Customer Discovery and it has to work.

Sell to Earlyvangelists

With the finished MVP, it%u2019s time to visit with the original interviewees from Customer Discovery and sell them your MVP. In addition, I make sure to include several new potential customers that haven%u2019t been exposed to any discussions on the product at all. The reason for this is to test your sales process as closely as possible to how a web visitor would but with the added benefit of being in the room.

This is how I structure my sales presentation %u2013 part usability testing, part selling:

1. Show customer your landing page.
2. Ask them what they think the service is about. What%u2019s compelling, what%u2019s different? Does the difference matter?
3. Show them the pricing page and test pricing.
4. Are they convinced to try the service? If not, why not?
5. If they are sold, watch them go through your sign-up flow.
6. Take lots of notes and fix obvious usability/messaging issues before next iteration.

Structuring the sales presentation like a usability test reveals lots of actionable problems early that you can address before going on to testing web visitors. To learn more about running interviews in a usability test format, read Steve Krug%u2019s latest book: %u201CRocket Surgery Made Easy%u201D.

If you%u2019re going to be relying on free customer acquisition channels, now is the time to assess their effectiveness in driving new web visitors to your landing page. Otherwise, supplement with some paid traffic.

Measure Product/Market Fit

Now that you have some web traffic, you need to instrument a basic conversion dashboard that measures your AARRR metrics. Of the five, Activation and Retention are most critical towards achieving Product/Market Fit. Focus on those first and don%u2019t get distracted by trying to grow customer acquisition or referrals (virality). You%u2019ll optimize these in the next stage %u2013 Customer Creation.

Getting to fit typically requires multiple iterations on the UVP (positioning) and initial user experience flow. Because initial web traffic tends to be small at this stage, I have found it more effective to balance quantitative testing (A/B tests) with more qualitative testing (face-to-face usability tests). Usability experts agree that you need just 3 face-to-face tests to reveal 80% of the issues. Try learning anything from 3 abandoned web visitors.

Quantitative metrics clearly have the advantage-of-scale once you%u2019re generating lots of traffic but they also have a place early on especially for troubleshooting problems with your conversion funnel. For instance, I%u2019ve used my activation metrics to uncover several technical issues with my signup flow, that were browser/OS specific, and preventing customers from completing installation of CloudFire.

Iterate or Exit

So how do you know when you%u2019ve hit Product/Market fit? Dave McClure suggests hitting a 6 or higher on a customer satisfaction scale of 1-10. Sean Ellis uses a survey to determine if more than 40% of his customers would be disappointed if the service were discontinued. The mechanics of how you measure Product/Market fit is a little vague and subjective %u2013 how many people do you poll, when, how?

I rely on a combination of my revenue and retention metrics to identify customers that are continually paying AND using the product. I then poll these customers with the %u201Cwould you be disappointed%u201D question. I feel that question is less vague than relying on a 1-10 scale whose weighting might vary from person to person. As with Problem/Solution fit, there is no empirical answer to how many customers you need to declare a fit. You stop when you aren%u2019t learning anything new. Getting a strong signal from just 30 customers could be enough to declare Product/Market fit and move you to the next stage %u2013 Customer Creation.

Was this helpful? Would you like to see more?

I started this exercise as a way to capture the Customer Development flow for my web startup but in the process of writing realized the flow has wider applicability to lots of web startups. Based on the comments and feedback that have been in coming in, I sensed an interest in seeing even more tactical customer development/lean startup techniques as applied to web startups. To that end, I am considering organizing my %u201Ctheory to practice%u201D lessons learned into a more coherent %u201CGetting to Product/Market Fit by Getting Lean%u201D e-book. I haven%u2019t finalized the title yet but before getting too far ahead of myself, I wanted to gauge interest from you.

Is this something you want to see? Please leave a comment or Drop me a line.

Print

PDF

Hello there! If you are new here, you might want to subscribe to the RSS feed for updates on this topic.

Related posts:

1. Customer Development Checklist for My Web Startup %u2013 Part 1
2. How I learnt to grok Customer Development

-->

Tagged as: customer development, customer validation