Ash Maurya - 10 Steps to Product / Market Fit - Pioneers Festival 2012

so some of you might know me because I wrote a book called running lean but I like to start off by saying that by way of introduction I'm first and foremost an entrepreneur so I hate to be the so I hate to be the bearer of bad news but this is the sad reality most products fail the more interesting number though is that two-thirds of the company companies that actually succeed report having drastically changing their plans along the way so what we learn from that is what separates the successful entrepreneurs from those that don't quite make it is not necessarily starting with that perfect vision that perfect plan a but finding a plan that works before running out of resources so we're having problems with the theory here so it's not finding a perfect plan a but finding a plan that works before running out of resources is it easier if someone switches this okay so what I want to talk about today is really that path of finding that that plan that works so what we'd normally call product market fit so let's start out by saying start out by defining what product market fit is so some of you might know who Marc Andreessen is he's not the one who coined the term but he is certainly known for the one who popularized the term product market fit so it's really the point where the hockey stick curve starts to take off where customers are buying more than you can produce where they're using your product and it's one of those definitions where while it's great to know that you have achieved product market fit that definition doesn't help you get there so if you have to ask if you've achieved product market fit chances are you haven't so that leads us to the to believe that product market fit is this black art or it requires luck or some magic to get there but there is a there is a scientific approach to get to that which is what I want to talk about today so there is a systematic way for going from your initial idea to this product market fit and so my talk is going to be organized in three these three stages and we'll walk through each one and stay in turn so before you actually even think of product market fit you have to start with problem solution fit and the key question there is asking do I even have a problem that is worth solving in the first place and so the way that you get started with that is you have to start by drawing a line in the sand by putting a stake in the ground by documenting where you are headed your destination what that initial vision really is and the reason for that is because of this is as entrepreneurs we are especially gifted at rationalizing anything so no matter what information is thrown at us whether good or bad we can always rationalize it to believe what we think is true and so to avoid that and so maybe I'll take a step back and say that passion and perseverance is an important quality of being an entrepreneur but left unchecked that can turn into blind faith and what we try to encourage in the lean startup is to try to balance that with facts and not run on blind faith and take a more empirical almost scientific approach and so that's why it's important to draw the stake in the ground now typically we have used business plans for these purposes for documenting those core assumptions how many people in the audience have ever written a business plan before show of hands now keep your hands up if you enjoy that process so one one two there are two people in the audience that do and there always is a handful of people and that's great because it is a good exercise for the entrepreneur the problem is the people who typically make you write it don't actually take the time to read the business plan they want a more condensed version of it so they want a 10 page slide deck they want the 30 second elevator pitch they want you to interest them to excite them and so why don't you start there so the process of documenting that vision is very important but the format is all wrong and so there is this new format that has been popularized over the years called the business model canvas format now this is a slight variation of that this is the lean canvas format which is my optimization my twist on Alex Ostrow Walter's work which I'll show here in a second but I made certain changes to make this a lot more actionable for the products that I was building this is what the original canvas looks like and for those that are interested these are some of the changes that I made I'm not going to walk into those changes or why I made them but there is a blog post that goes into the thousand words and why those those changes made sense to me I'm not going to walk through the business model canvas either but for those of you that have written business plans or have been thinking about your business you'll recognize a lot of the building blocks there are things that would typically go into documenting that vision or documenting that business model now the important thing here the key takeaway is that as entrepreneurs we look at the canvas like this we are in love with our solution that is really what gets us excited that's if I ask how many people are here to build great products probably all the hands will go up because we fall in love in love with that solution what I call awesome but here's the thing is that this the solution by itself is not enough the solution is not the product of the startups most startups fail not because we fail to build what we set out to build but because we fail to find the right customers the right markets for our products and so it's all the other things that are on that canvas and so when you're thinking a product market fit you you have to build a great product that is a given but you have to make the rest of the business model canvas work as well and so if you've seen the business model canvas there was a product side there was a market side and you have to get these pieces fit together like you would fit a jigsaw puzzle now having a great vision is important but it's not it's not it's not a guarantee of success and it's only the beginning you also need to then take the next step and come up with an implementation strategy or a rollout strategy for how you will realize that vision so the other way to explain the point that I made about entrepreneurs a second ago is that when entrepreneurs get hit by an idea that idea usually comes in as a single stream of consciousness but if we deconstruct that we can break it into its component pieces at the bottommost level we have the vision what it is we want to achieve then is the strategy which is how we want to achieve it and at the very top is the product and this product strategy product strategy vision pyramid is how we would structure a company that we're building now the problem too many entrepreneurs make is they rush up this pyramid and they go all the way up to the top and start optimizing of the product we fall in love with the solution we start building it but the vision and strategy are foundational pieces that you have to have a solid foundation before you start that optimization exercise so vision is very important but strategy is equally important so if we take facebook as an example Facebook didn't win on vision they weren't the first to build a social network and everyone had the same vision everyone wanted to build the largest social network on the planet and they were far bigger social networks when Facebook started with lots of investment lots of unfair advantages they didn't have any and the way they won was with strategy the way they rolled out their there's their social network was unlike any others while all the others were trying to build the biggest social network they were trying to take pre-existing social networks that existed on college campuses and turn them online and through that disciplined rollout strategy they were able to build a social network that not only grew to be very large but had very high engagement and eventually became what people used while the others were just big for name but not really high on activation and engagement which I'll talk about here in a second so the strategy is almost as important as the vision when you're you're thinking of how you how you get to that product market fit stage now we all would like to build a company like Facebook which is used by practically everyone on this planet but even they started with a very clear definition of their early adopter which happened to be a college student and not just on any campus for the Harvard campus and that's another key point is that the early adopters really define your early business model they're really going to drive that business model for those of you that have read Jeffrey moods crossing the chasm you would be quick to point out that early adopters behave very differently from the mainstream market and there's this chasm it's usually hard to cross that chasm and there's a whole book and there's lots of material written on this but here's the thing most of you are at the beginning of this curve you don't you're trying to worry about the mainstream market is a mistake so you you should be so lucky to have this problem down the road you should be lucky you have to worry about the chasm down the road and so rather than trying to worry about the mainstream market instead focus on the early adopter market and and the key there is that it's impossible to really leapfrog the early adopters into mainstream you really have to write that ferb and use the momentum of the early adopters to really leap over that chasm so that's a latter stage problem but the point is you have to start from that from that beginning now the reason we engage early adopters is really for this purpose is we want to get inside their minds under and their their their understanding of the world and their problems from which we then begin to create the first iteration the first solution that we want to then put out and start this process of learning and the tool we use for that is the minimum viable product or MVP now there are a lot of definitions of MVP out there the one that I subscribe to the most is is really a product that you put out there it's the smallest solution that you can build that delivers value and a bonus there is it also needs to capture some of that value which is just a fancy way of saying that if you're going to charge for your product start charging with your MVP don't don't hide behind excuses of betas or alphas or things like that if you're delivering value capture some of that value because that is one of the more riskier parts of your business model anyway so once you've got this MVP build you can now get into the second stage which is early traction which is starting to ask the next question have I really built something that people want if I build something that is valuable now when you when you launch a product lots of things can and do go wrong now typically the answer is you know looking for data looking for metrics and looking for answers within those metrics but the problem is that in today's world we can cat we can we can measure almost anything and so what we end up what ends up happening is we actually collect too much information and we end up drowning in our own set of numbers and we don't quite know what to really make sense of once we launch so things don't get clear after we launch they typically get more more confusing and I'll show you how that really happens so this is the the vision of our perfect dashboard some of you might not see that picture well enough but that's Tony Stark Iron Man in his workshop and if you've watched the movie he's there in this workshop where he's got the dashboards in front of him he's clicking around and getting all these numbers and doing his work and that's the dashboard we envisioned when we build our products but this is what the reality really looks like so we typically start out with a few tools and we add on more tools and we get lost in these numbers is google analytics alone can throw out hundreds and hundreds of numbers at you and you don't quite know which ones to really focus on and how to really make sense of the data so the ways to counteract when you first launch is not looking at all those numbers not looking at where your traffic is coming from and all those things will be important for troubleshooting and optimizing later but you need to start out with a standardized measure of accounting a standardized measure for progress and so just like in the financial accounting world we have standards financial statements we have income statements and balance sheets that help you measure the progress of an established company we similarly need the equivalent for startups we need something called innovation accounting where we've got the standard measure of progress so we can ask the question are we making progress from one day to the next from one week to the next from one month to the next and so at my company spark 59 we have standardized on Dave McClure's pirate metrics who I think many of you know and he's going to come in and spend a lot of time with you at the festival but we have we have standardized on on this on this this way of measuring progress and really what it does it helps you capture the customer lifecycle and and really be able to to highlight what's important so I'm not going to walk through these because I know we're not we don't have a whole lot of time but the idea here is that we want it allows you to capture the full customer lifecycle and it's not just limited to startups this can be used for for really any remodeling any kind of business the other key point here is you want to focus on delivering value over growth so trying to grow a company without having the basics down without being able to deliver value is a form of waste and the way that we do that I'll kind of highlight that on this this funnel so the top of the funnel is acquisition it's how customers get in to see your product the first thing that really matters is delivering that great user experience to them so that's the first value metric that's the low-hanging fruit you can tackle the next thing is retention so making sure that people not only get that first user experience but they're able to come back repeatedly and use your product and these two are the most important things to initially focus on it things like revenue matter but they're if you're charging for your product from day one the revenue takes care of itself if people are using it repeatedly they will keep paying for it and for other markets where revenue keeps tends to be a more multi-sided market situation revenue maybe deferred and that's fine for other reasons but the point of this stage is getting people from the top of the funnel all the way to the bottom and getting enough people not all the people but enough people through that funnel now because at this stage you don't have a lot of customers the learning tends to be more qualitative now when I share this with people people oftentimes get very nervous because I tell them at least for the first stage you know rather than trying to get tens of thousands of people to use your product and maybe convert them over time just try to get ten referenceable customers just try to get 10 people through that funnel who can go from acquisition all the way down to maybe paying you and giving you a positive testimonial which you can put on your website just do that and when people hear that is that how is that statistically significant because I want to get tens of thousands of people on my side eventually and I tell them if you can't even get those ten people on your site you can't get ten people through the funnel that's pretty significant if you can't do that with people that you hand-picked with your early adopters who you've talked through you're giving them the high-touch concierge treatment and if they don't get value with your product there's no way that you're going to get that by getting tens of thousands of people to your landing page or your website nothing's really going to change there so at this stage you don't really need any fancy analytics tool or any fancy third-party metrics kind of a solution and I'm saying this that's by the fact that I do build one of those fancy analytics tools but what we do at even my companies in the earlier stages we use just a simple board like this so this is a Trello Kanban board and we list all our customers when you can count the number of customers you have on your fingertips that's actually a gift because it allows you to give them that personal attention to get them through the funnel to do what it takes to get them through there now once you have more customers and you can count this will not scale and you then move on to two more numbers which I'll talk about in the next and the third stage but this saves you a lot of time in the beginning you don't need to instrument these analytics you don't need to collect all these events because at this stage you can you can really talk to your customers which is the gift that you have so once you've got the early traction down once you can get enough people through that conversion funnel so it may be 10 20 30 people through that funnel you then go into the final stage which is now how do i scale this obviously build something that enough people are saying is valuable how do I now scale this to the level that I need to get to and this is where you start asking your engine of growth questions so engine of growth is a term that Eric Ries point he describes in his book the Lean Startup and essentially the premise there is that there are three ways that startups can grow there are three primary engines of growth and so I'll illustrate them here again as well so if we look at the customer funnel the first engine of growth is working at the top of the funnel so it's it's revisiting this funnel so now we've got the middle part figured out we have got value figured out we now go to the very top of the funnel and figure out a way to acquire customers at scale in a cost-effective manner so the reason it's called a paid engine of growth is you might actually buy ads you might actually buy traffic to be able to then get them in your funnel and convert them over time and if you can do that where the cost of customer acquisition is less than your lifetime value then you've got an engine that is sustainable and that will grow even if you're using things like social media because we people say well social media is free I don't have to pay anything well that requires a lot of human capital so there is no such thing as a free lunch even those types of channels you have to invest in you have to take the time to blog you have to take the time to tweet and that is a paid channel and paid engine of growth similarly if you were hiring a direct sales force their salaries that go into that to go in and sell to new to to more companies and to all those fall under the paid engine of growth the other way that you can grow is by improving your retention numbers so in the flat stage you have to get some level of retention from your early adopters well now you want to increase that at scale and so this is the second engine of growth which is the sticky engine of growth so can we improve the lifetime value of our customers by making them use our products longer and keep paying us either as a as a in the recurring service form or buying more of the product from us upsells cross sells things like that so that would be the sticky the sticky engine of growth and then finally the last engine of growth is the viral engine of growth so this is where you take your happy customers and you turn them into advocates of your product and be able to help spread what you're doing now for many products a number of these engines of growth apply up to probably some of you are saying well all three them apply to me which one do I focus on you have to focus on just one to get the maximum return on your experiments or the maximum return on your investment and the way that you pick that one is try to figure out which one of those triggers has the impact to 10x your business which is that which of them has the impact really 10x the numbers you're getting so in the case of Facebook they had all three they had high activation high retention they could have tried to make Facebook more sticky they could have tried to use even paid advertising to drive people into Facebook it certainly could raise a lot of money to do those kinds of things but they had the biggest engine of growth which is the viral engine of growth and so for them they really double down on that one and emphasize certain features and made certain things possible in the product where they rode that engine of growth so for them that was their 10x engine of growth for a lot of us virality is not an option so we have to look at the other two and figure out which one has that big impact all right so the now that you've got more customers you start to get more quantitative data the the the terrain doesn't get that much simpler it actually gets harder to now even get actionable metrics because at this point you've got a lot more customers who are who are generating not only a lot more data okay who are generating not only a lot more data but at this point you are pushing a lot more features earning a lot more marketing campaigns and so it becomes harder to make sense to drive cause and effect into what you're doing so when you push features out when things go well we all say yes you know that was because of these features we are really happy that the feature had this big impact and when things don't go that well we have to say oh it's because of something else we look for something else to blame and that's that rationalization so when you're looking at your data you have to be able to draw causality and where and the reason that is complicated so the customer lifecycle is not a short life cycle event it usually can take several weeks or months to really come to fruition which is illustrated in these pictures over here so the blue dots are showing groups of customers that sign up to your product there's a time shift to when they activate and there's a further time shift to when they start paying you and so it becomes very hard to really measure the impact of changes that you make at very beginning because it's going to take time for those effects are really trickle forward and to really what cohorts do is they is they let you correct for these time shifting by sliding all these time frames back and really let the blue dots align so I can look at groups of customers and see how they really behave over time and that's really the power that you get with cohort analysis so we actually emphasize measuring everything really as a cohort the other time that you get with metrics is that metrics only tell you what's going wrong but they don't tell you why things are going wrong and so what we typically end up doing is we look at the data and we come up with new hypotheses we come up with new features to go test and while that is good it's still very hit-or-miss and we run experiments that way there's an even better way which is getting your customers to really tell you what's going wrong what's going wrong with this remote okay all right so um and so this is now getting into the realm of something we call lifecycle messaging so as people are going through your funnel you can be able to message them and be able to learn from them to actually inform yourself to what might be going wrong and the kinds of features and things you might build so this is a screenshot of one of our dashboards where I'm showing an activation sub funnel and you can see a drop off so I can look at these numbers and be able to see where in the process people are dropping off and maybe I'll have some product ideas but you have to go behind the numbers you have to go to the people's on the right hand side you see all the people who successfully finished our funnel and I can toggle this I can actually look at all the people who failed can we switch next slide please and so these are all the people who've failed to activate so I want to be able to see the people that successfully activated the people that fail to activate and then that gives me a lot of ammunition to now go and email them and may be able to ask them what might what might go wrong now this doesn't scale once you've got hundreds of people signing up to your product every day so this is where you can go the next step and even automate that so this is an email that we send out when people run into problems so after seven days in this particular case we send them a simple email saying something went wrong you know please tell us what went wrong and the email is very personalized it comes from me and this campaign alone generates 20 to 30 emails a day where people come back and in their own words tell us you know why they haven't achieved what we want them to achieve and that is a very rapid way for us to take that learning and then formulate new sets of hypotheses which we then test now the final point that I want to make is that when you do these when you do this experimentation you're going to get a lot of failure you're going to get a lot of experiments fail now typically most entrepreneurs run away from failure and there's a oftenly overly abused term in the lean startup world called a pivot so you justify these drastic changes and directions based on you know based on their gut so they think that they've got these failures and they now need to go and pivot well pivot is one of those overly used words and it has to be grounded in learning if you don't round your pivots in learning you're really doing a see what sticks approach which is not a very optimal way to learn right slight change okay there's a reason that this hockey stick curve is flat in the beginning it's because before you find that hockey stick curve you're going to get a lot of things that don't work finding a business model that works starts with going through that that that flat part and so you're going to see a lot of failed experiments and the final point that I want to leave you with is that rather than running away from the failed experiment you actually have to dig deeper and get into the root cause of those failures because that's really where the breakthrough insights lie if you don't have any problems then you're not going to get those breakthrough insight you're not going to unlock that hockey stick curve so I don't know if you have much time for questions we can we can switch to questions so I requires a premiere you work in how do we do customer development customer doesn't know what they want they don't know - no questions well I would almost say that well if you if you've got time we can talk offline to see if you're really in a new market or not so sometimes we think we're in a new market but we really aren't and the way that you find that out is by finding out not whether customers understand what you are trying to do because that's a solution but really find out what is the underlying problem you're trying to solve and do they do anything today to solve that problem and oftentimes there are many alternatives so even the iPad it looks like a new product in the new category but it replaced so many things that we did before from even reading magazines and newspapers the pre web browser all kinds of things and so that would be the first place I would start the other thing which I would say is that new markets are really hard for startups to really get into so if you're really in a new market situation you should you should consider whether you've got enough resources to educate your marketplace or you have to go figure out something you know figure out a different problem or different different market to go address catch no my name is Marcus right and so I would say that's positioning if you are positioning yourself as you know great user we need your feedback to help us then by all means they feel like they're giving you it's a privilege that you're asking for but here's the thing if you're solving a must-have problem and you put something out there customers actually jump through hoops to get to the solution because you're helping them save more money you're helping them save time whatever that end goal is and that's the definition of the must-have problem is that it's as important as product market fit when customers these early adopters jump through hoops and are happy to pay you so there are there are products that we build where people pay us in advance of actually building the product because they know where we're going is going to be where they want to get to now you of course D risk it you offer the money-back guarantees and you say if you don't get the value you're not going to charge we're going to give your money back but putting money not only helps you is the first form of validation for you but it also brings more skin to the game the customers are happy to pay for value that they will realize if you're asking for feedback that's a very weak and a soft commitment all right thank you very much that's why I'm going to be around if people need to people want to ask more questions I'm happy to do that one on one thanks you

Channel: Pioneers

Views: 38,343

Rating: 4.9200001 out of 5

Keywords: Ash Maurya, Product Fit, Market Fit, Lean Startup, Running Lean, Pioneers Festival, Vienna, Austria, STARTeurope, Start-up, tech, web, mobile

Id: Nhl5nzUNQCA

Length: 26min 52sec (1612 seconds)

Published: Sat Nov 10 2012