18th Dec 2011
The Four Steps to the Epiphany
‘Build it and they will come’ is a dangerous assumption for a startup.
Why Startups fail?
I am reading The Four Steps to the Epiphany by Steven Gary Blank (retired serial entrepreneur teaching enterpreneurship at several major universities). The book starts by describing a scenario of an ambitious startup which raises a lot of money, prepares everything (product, advertising and PR) for a glamorous launch only to find out they are significantly missing their revenue targets. In an attempt to attract new customers the startup starts burning through the cash ever quicker ultimately ending up in a bankruptcy. According to Steven this is a very common scenario.
Steven suggests that startups don’t fail because of bad products but because they don’t allow enough time for learning and discovery about their respective markets and customers. He suggests a typical startup needs two or three attempts to figure out their market to get it right but most of the startups don’t plan for that. Instead believing they will get it right the first time they follow a very risky path of all-or-nothing, scale up their operations prematurely and end up in a disaster because simply ‘Build it and they will come’ is a myth.
Market Type
Steven stresses the big difference between introducing a new product to an existing market (this is what mature companies do) and introducing a new product to a new market or a resegmented market (this is what most of the startups do). In the first case customers and their behaviour are fairly well known and that’s why mature companies often succeed with new introductions. On the other hand in case of resegmented markets (introducing niche or low cost products) and especially in case of new markets the reaction of customers is unknown or at least very uncertain.
The two types of markets respond completely differently to the same impulses. This has very sound practical consequences and requires a special consideration when hiring staff for startups. Steve argues that people always tend to apply successful strategies from their past but should the majority of their experience be from mature companies operating in existing markets, their actions applied in a startup will not yield the expected results, in fact the actions can seriously endanger the new company.
Another great insight that’s vital for startups to understand is the process of technology adoption by a market. Startups need to realise that customers differ based on their product needs and buying habits, they can generally be divided into early adopters (customers eager or willing to try a new technology and products) and late adopters. In the first phase of a startup the available market for a startup consists only of the innovators and early adopters which is circa 16% of the size of the overall envisioned market. This needs to be reflected in the financial forecasts otherwise a startup won’t be able to hit their revenue targets.
Customer Development Plan
The book provides an easy to follow guide on how to avoid the fate of the company from the aformentioned scenario. The approach is quite simple, it says that in addition to Product Development Plan a startup needs to prepare and follow a Customer Development Plan. The goal of Customer Development Plan is to understand in detail customer problems and needs, discover a market for the envisioned product, develop a sales model which can be easily replicated, create and drive end user demand and then transition the organisation from one focused on learning and discovery to one focused on execution.
Although I have only read the first part of the book it has significantly boosted my confidence in success of elexu. I have always been a strong believer in elexu as a product I could see very clearly how it will work and what value it will deliver but I used to feel a bit uneasy as I couldn’t picture clearly the process of customer adoption. I could see elexu before the launch (beta version) and I could see elexu three years after the launch but the period in between was covered in a haze for me – it is not any more – thanks to Steve Blank and The Fours Steps to the Epiphany.
Now it’s time to start working on the Customer Development Plan, I can’t wait.
‘Build it and they will come’ is a dangerous assumption for a startup.
Why Startups fail?
I am reading The Four Steps to the Epiphany by Steven Gary Blank (retired serial entrepreneur teaching enterpreneurship at several major universities). The book starts by describing a scenario of an ambitious startup which raises a lot of money, prepares everything (product, advertising and PR) for a glamorous launch only to find out they are significantly missing their revenue targets. In an attempt to attract new customers the startup starts burning through the cash ever quicker ultimately ending up in a bankruptcy. According to Steven this is a very common scenario.
Steven suggests that startups don’t fail because of bad products but because they don’t allow enough time for learning and discovery about their respective markets and customers. He suggests a typical startup needs two or three attempts to figure out their market to get it right but most of the startups don’t plan for that. Instead believing they will get it right the first time they follow a very risky path of all-or-nothing, scale up their operations prematurely and end up in a disaster because simply ‘Build it and they will come’ is a myth.
Market Type
Steven stresses the big difference between introducing a new product to an existing market (this is what mature companies do) and introducing a new product to a new market or a resegmented market (this is what most of the startups do). In the first case customers and their behaviour are fairly well known and that’s why mature companies often succeed with new introductions. On the other hand in case of resegmented markets (introducing niche or low cost products) and especially in case of new markets the reaction of customers is unknown or at least very uncertain.
The two types of markets respond completely differently to the same impulses. This has very sound practical consequences and requires a special consideration when hiring staff for startups. Steve argues that people always tend to apply successful strategies from their past but should the majority of their experience be from mature companies operating in existing markets, their actions applied in a startup will not yield the expected results, in fact the actions can seriously endanger the new company.
Another great insight that’s vital for startups to understand is the process of technology adoption by a market. Startups need to realise that customers differ based on their product needs and buying habits, they can generally be divided into early adopters (customers eager or willing to try a new technology and products) and late adopters. In the first phase of a startup the available market for a startup consists only of the innovators and early adopters which is circa 16% of the size of the overall envisioned market. This needs to be reflected in the financial forecasts otherwise a startup won’t be able to hit their revenue targets.
Customer Development Plan
The book provides an easy to follow guide on how to avoid the fate of the company from the aformentioned scenario. The approach is quite simple, it says that in addition to Product Development Plan a startup needs to prepare and follow a Customer Development Plan. The goal of Customer Development Plan is to understand in detail customer problems and needs, discover a market for the envisioned product, develop a sales model which can be easily replicated, create and drive end user demand and then transition the organisation from one focused on learning and discovery to one focused on execution.
Although I have only read the first part of the book it has significantly boosted my confidence in success of elexu. I have always been a strong believer in elexu as a product I could see very clearly how it will work and what value it will deliver but I used to feel a bit uneasy as I couldn’t picture clearly the process of customer adoption. I could see elexu before the launch (beta version) and I could see elexu three years after the launch but the period in between was covered in a haze for me – it is not any more – thanks to Steve Blank and The Fours Steps to the Epiphany.
Now it’s time to start working on the Customer Development Plan, I can’t wait.
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