People Over Plans: Why Customer Validation Will Save You Tons of Money on Your Investment (Part II of II)

This Voices submission comes from CT Next Entrepreneur-in-Residence John Seiffer of CEO Bootcamp, who is also a member of The Grove in New Haven.

John has been an entrepreneur since 1979. He began consulting with other entrepreneurs in 1994 through his CEO Boot Camp practice. He served as president of the International Coach Federation in 1998. He’s also an angel investor, recently stepped down as president of the Angel Investor Forum and is currently an Entrepreneur in Residence with CTNext. Entrepreneurs can sign up for office hours to meet with John. He is also offering a free eBook, “The Many Hats of an Entrepreneur,” at his CEO Bootcamp website.  
On Saturday, September 20, from 10AM – 5pM, John will co-facilitate the workshop, “Customer Development Intensive,” with Derek Koch of Independent Software. Note: use code 25off for a 25 percent discount).
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Last time, in “People Over Plans,” we talked about Customer Discovery where you literally discover customers who have a problem you can solve. We covered these ideas:

  • The purpose of a business is to create a (paying) customer.
  • A customer pays you to solve a problem that they feel is worth paying for.
  • Your initial assumptions about the problem who cares about it are likely to be wrong.
  • A guided conversation is one tool (of many) you can use to learn if people care enough to pay to solve this problem.

Now you know who the customer is and what their problem is. Most entrepreneurs think the solution is obvious so they start making it and bringing it to market. I made my worst investment ever in a company that did this.

The problem they were solving was that maintenance crews at apartment buildings waste a lot of time (and hence money) walking back and forth from the job to the shop getting the right tools and parts. Tools were often lost or left at a job site and parts lists were not known till the jobsite was inspected.  The solution was ingenious – provide a complete set of tools and parts in a carrier that is easy to transport so workers would always have what they needed. And make it easy to inventory so managers could check that workers were carrying a complete set at all times. The product was designed and built with input from the users (not the customers) and the company was launched. They got a very large sale right out of the gate.

Unfortunately this sale was an outlier, so the company never learned the real obstacle to growth. Yes, the customer was wasting money. Yes, this was a problem they wanted to solve. But the solution required them to change a couple of key things about their business. First they had to buy the product for their workers. Up till now, since managers couldn’t keep track of tools, the workers were required to buy their own. The company had proof that the time savings would pay for the tools in just a few months. So they thought this would be an easy sell. But to make that savings real, the managers had to change the way they managed. They had to regularly inspect the tool kit that they bought to make sure the workers weren’t losing or otherwise “disappearing’ their tools. Because the system was well-designed this was simple to do – took less than a minute a day per worker.

But the combination of laying out money and changing management procedures caused sales to go very slowly and become very costly. The company quickly ran out of cash, the CEO lost his job; he and the original investors lost their money.

Here was a classic case of finding a problem that customers cared about, but having a solution that they didn’t like.

What should you do?

At the end of the customer discovery phase you should have a some data to support your conclusions about the following:

  • A clear definition of who your customer is
  • A problem (as they define it) that they are willing to pay to solve

As a bonus, you might also have learned how much this problem is costing them. This is more common in a business customer, than a consumer. But if you can discover it, you’ll get some idea of how to “value price” your product.

Now you want to move into the next phase of learning. Where you learn what your customer thinks of your solution. This is called customer validation.

One tool that’s used for customer validation is called the MVP – minimum viable product. I think it’s poorly named. It should be minimal, but it’s not often a product. The MVP is not the minimal thing you can sell – it’s the minimal feature set you can learn from. You’re trying to learn the following:

  • What do customers think of the features you’ve assembled to solve their problem?
  • How would they buy it?
  • What might they pay for it?

If the solution you have in mind is software, or an app; then your MVP might be a set of drawings or wireframes of what you think the solution would look like and how customers would interact with it.

In the case of the company I invested in, they should have cobbled together a rough prototype showing the key features they believed solved the problem (complete tool set, easy transportation, and easy inventory management), then taken that around to get some feedback – from customers, not just users.

The MVP should be easy to modify and retest. I heard of one company whose MVP was drawings of wireframes for their product. Many of their customer happened to be gathered at one place (the South by Southwest event) so during the day they went around showing it off then at night regrouped, assimilated their learning and drew up a new set to test the next day. In just a few days, they’d gone through many iterations and had a much better idea of what their customers wanted to buy.

What’s critical about this process is to separate your learning into two phases: The first is problem focused (NOT product focused). It’s called Customer Discovery. Only after you’ve discovered a problem and a customer base that cares enough to pay to solve it, should you embark on Customer Validation, where you learn what features your customers care to pay for.

The goal is to learn as quickly as you can so you can launch your company without building something people don’t want to buy.

If you want to learn more about this process, please allow me another shameless plug – Derek Koch and I are doing an intensive workshop on this very topic. If you’re committed enough to invest a whole day (Saturday Sept. 20, 2014) learning about it – either for your company or companies you mentor and advise, please sign up at https://custdevintensive.eventbrite.com and use code 25off for a discount.

About Suzi Craig

Suzi Craig
Suzi Craig is Director of Community Development for Independent Software (www.indie-soft.com) and is leading the 2014 Startup Roadshow effort for The Whiteboard. She brings Connecticut entrepreneurs closer to each other and available startup resources, and to the compelling reasons for starting and growing a business in the state.