the new rules of early-stage product development (masschallenge / skolkovo)
DESCRIPTION
Slides from my workshop delivered in Moscow to Skolkovo Super League companies, as part of the MassChallenge entrepreneurship "bootcamp". "The New Rules of Early-Stage Product Development" introduces a framework called the "Product / Market Fit Matrix", which is used by early stage companies to help them find product / market fit, based on their starting point of how strong their initial hypotheses of the market are.TRANSCRIPT
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The Rules of Product Development MassChallenge / Skolkovo Super League
Rishi Dean | @rishidean
Sep 10, 2014
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Most startups fail
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Source: h"p://bit.ly/
startupfailurerates
6 in 1000"funded
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Source: h"p://bit.ly/
startupfailurerates
60% of those fail,"30% flounder
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Source: h"p://bit.ly/
startupfailurerates
<10% positive returns,"<1% get big
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Source: h"p://bit.ly/
startupfailurerates
=.01%"“breakout success”
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1000x better?"= 10%
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WHY?
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Run out of money
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Run out of money
Not enough paying customers
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Run out of money
Not enough paying customers
Not compelled to pay
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Run out of money
Not enough paying customers
Not compelled to pay
Product doesn’t meet needs
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Product / Market Fit
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The old product development model is outdated
§ Start with a firm vision & plan (MRD) § Compile detailed specs (PRD) § Develop via a “waterfall” model § Converge to a massive “launch” § Let the sales roll in
Concept / Biz Plan
Specs (MRD/PRD)
Develop & QA
Launch!
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The old product development model is outdated
§ Start with a firm vision & plan (MRD) § Compile detailed specs (PRD) § Develop via a “waterfall” model § Converge to a massive “launch” § Let the sales roll in
Concept / Biz Plan
Specs (MRD/PRD)
Develop & QA
Launch!
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The biggest false assumption is that you know what you’re doing
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Premature scaling kills promising companies
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§ Actions don’t correspond to stage § Discovery, validation, efficiency, scale, sustain
§ De-synchronized customer, product, team, financials, business model
§ Executing without a regular feedback loop § Not adapting business model to a changing market,
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The pace of change is accelerating
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§ Globalization increases competition § Lower technical barriers to entry § Increased capital efficiency § Cost of acquisition is near zero
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Accept it, you’re not Steve
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…but even he fails sometimes
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“the greatest perfection is imperfection” -Lucilio Vanini
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Product / Market Fit
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Understanding Product / Market Fit
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§ Product satisfies a compelling market need that is worth solving
§ Market is large enough to build a business § Sales are repeatable and scalable § >= 40% of customers say they would be “very
disappointed” without your product
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Asking whether you’ve achieved product / market fit is like asking how you know when you’re in love
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Actions before and after PMF are very different
Before After
§ Build the sales, marketing, and delivery machine
§ Build the company
§ Get big, fast
¡ Customer discovery & validation
¡ Measure, iterate, pivot
¡ Burn as little as possible to survive
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But how do you get there?
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Start with your customer
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YOU are the customer
You are close to the customer
You are not the customer
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A “tail” of two customer types
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The Product / Market Matrix
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Characterizing your situation Market Hypothesis
Prod
uct H
ypot
hesis
Untested Validated
Validated Untested
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Characterizing your situation
“Technology in search of a problem”
(MIT)
“Build it and they will come”
(Apple / 37Signals)
“Many right answers” (McKinsey)
“Good hypothesis, no conclusions”
(Lean)
Market Hypothesis
Prod
uct H
ypot
hesis
Untested Validated
Validated Untested
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Characterizing your situation
“Technology in search of a problem”
(MIT)
“Build it and they will come”
(Apple / 37Signals)
“Many right answers” (McKinsey)
“Good hypothesis, no conclusions”
(Lean)
Market Hypothesis
Prod
uct H
ypot
hesis
Untested Validated
Validated Untested
§ Figure out where you really are
§ Different resources and inputs will determine your starting point
§ Where you are should dictate milestones, revenue projections, funding requirements, etc.
§ Assume you know less than you do, until revenue proves otherwise
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1) Build it and they will come
“Technology in search of a problem”
(MIT) Organic startup
(founder / market fit)
“Many right answers” (McKinsey)
“Good hypothesis, no conclusions”
(Lean)
Market Hypothesis
Prod
uct H
ypot
hesis
Untested Validated
Validated Untested
§ You are the customer
§ Firm vision + iterative releases (e.g. 37Signals)
§ Works in incremental or evolutionary innovation (slicker, quicker, better, cheaper)
§ Technology-driven problems (e.g. cure cancer) where “invention risk” is the key
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2) Technology in search of a problem
Rigorous market exploration
“Build it and they will come”
(Apple / 37Signals)
“Many right answers” (McKinsey)
“Good hypothesis, no conclusions”
(Lean)
Market Hypothesis
Prod
uct H
ypot
hesis
Untested Validated
Validated Untested
§ Identify key markets with compelling dynamics
§ Pick a few applications / markets and identify a hypothesis to solve for
§ Look for markets primed for speed of innovation diffusion
§ Understand the flow of $ and inject into an existing pattern
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3) Many right answers
“Technology in search of a problem”
(MIT)
“Build it and they will come”
(Apple / 37Signals)
Prototype and expand “Good hypothesis, no
conclusions” (Lean)
Market Hypothesis
Prod
uct H
ypot
hesis
Untested Validated
Validated Untested
§ You are close to the customer
§ Lead users are easiest path: transform an ad-hoc solution to something mainstream
§ “Imaginary assistant” notion
§ Personae development
§ Design thinking + agile development
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4) The truly lean startup
“Technology in search of a problem”
(MIT)
“Build it and they will come”
(Apple / 37Signals)
“Many right answers” (McKinsey) Hypothesis, test, learn
Market Hypothesis
Prod
uct H
ypot
hesis
Untested Validated
Validated Untested
§ The faster you can move around this loop the faster your learnings accrue
We Believe
We’ve Tested
We’ve Learned
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Some things are common
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Early stage startups live in uncertainty
“Technology in search of a problem”
“Build it and they will come”
“Many right answers” “Good hypothesis, no conclusions”
Market Hypothesis
Prod
uct H
ypot
hesis
Untested Validated
Validated Untested
§ Disruptive companies with an unproven market have inherent uncertainty
§ Starting point differs depending on available resources – goal is the same
§ Not mutually exclusive models – overlapping principles:
§ Prototyping
§ Customer development
§ MVP
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Mix qualitative and quantitative approaches to increase speed
“Technology in search of a problem”
(MIT)
“Build it and they will come”
(Apple / 37Signals)
“Many right answers” (McKinsey)
“Good hypothesis, no conclusions”
(Lean)
Market Hypothesis
Prod
uct H
ypot
hesis
Untested Validated
Validated Untested
§ Data-driven feedback matters more to help find a market
§ With a strong sense of the market, experience, “intuition” and the synthesis of qualitative feedback drive the process
INTUITION / QUALITATIVE
DATA / QUANTITATIVE
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Use the matrix as a tool
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Achieving PMF is a journey
“Technology in search of a problem”
(MIT)
“Build it and they will come”
(Apple / 37Signals)
“Many right answers” (McKinsey)
“Good hypothesis, no conclusions”
(Lean)
Market Hypothesis
Prod
uct H
ypot
hesis
Untested Validated
Validated Untested
§ You will move between blocks as business / market evolve, or diversity across product lines
§ You can remove uncertainty over time, but uncover others as you dig deeper
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Summing it up
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Product / market fit is the only priority in early stage startups
§ Have a hypothesis but embrace your ignorance § Pick the right starting point / approach to achieve PMF
§ Set the business goals accordingly § Travers the matrix FAST § Prototype, listen, measure, learn, iterate
§ THEN scale up the business
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Appendices
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The “Chasm” "Understanding dimensions of innovation
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Identifying markets primed for speed"7 factors of innovation diffusion rates
1) Relative Advantage How much better is your innovation than the incumbent solution?
2) Compatibility How easily can your innovation fit with the existing infrastructure and ecosystem?
3) Complexity Is your innovation easy to adopt and use, relative to the current method?
4) Observability How easily can customers see the differentiation and benefits of your product?
5) Trialability How easy can customers pilot or test your product?
6) Social Acceptability Does your product impact current social norms?
7) Regulatory Are there legal or bureaucratic issues related to your innovation?
Source: h"p://bit.ly/diffusionofinnova9ons