Creating Markets While Creating Products at Ryan Says…

It’s time to share some more advice - this time from Donna Novitsky (Venture Partner at MDV). Here I’ll talk about a model she taught me when I took a class on Global Entrepreneurial Marketing at Stanford - a model she calls the Tango.

The basic premis is that if you are starting a company in a new space, you must spend time building your market at the same time as you are building your product. These two important processes must occur simultaneously in a synchronized manner (it takes two to tango).

This means that when you are designing your alpha you should be having exploratory meetings with customers. When you are debugging your beta you should be soliciting product feedback from customers, and so on. The key is not to wait until you have a product ready before you start speaking to customers - otherwise it will be too late when you find out your product is not exactly what the customers want.

How do you talk to customers so early in the process, without having a product? The key is to sell the vision, the company and importantly the team. Build credibility with customers and show you have what it takes to deliver what they want.

Donna outlines several common mistakes made by startups who don’t follow this tango model:

1. Starting to Sell Too Late
By trying to live up to their vision, many entrepreneurs try to build too much before going to customers. This often leads to entrepreneurs building the wrong stuff and delivering too late. The key is to build the minimum compelling feature set and get in front of customers early. Donna suggests meeting with 30 potential customers in 3 months while engineering is developing the product. Find out:

What are their top priorities?
Where is greatest pain?
What do they do now to address it?
What do competitors offer and promise?
How are they organized?
Who has the budget?
Who makes decisions?
How are you different?

2. Over-Emphasizing the Product

Entrepreneurs shouldn’t focus too much on their product when meeting with early customers. Instead they should focus on the customers’ pain, and how they will help remove it. The key is to build a relationship and credibility before pushing the product.

Entrepreneurs should have someone in the organization who knows the game inside out, listens and communicates, builds rapport and translates and prioritizes requirements. This person’s expertise has more value to early customers than the product itself, and should be a key selling point. Market the person and not the product.

3. Big Company Customer Testing Process

Entrepreneurs, especially those who previously worked at large corporations, often try to apply big company processes when rolling out new products. These are typically very tactical processes, focusing on identifying customers will to test, receiving feedback on products, engineering revisions, sales training and launch. This works for a big company who already has a market, reputation and customer base - it does not work for a startup that is creating a market.

Instead, entrepreneurs should focus on a strategic process - figuring out the best market for their products (where best market is not defined by what the entrepreneur thinks, but where customers are actually willing to spend real $$). The early product testing process is the first time an entrepreneur’s vision is tested before the true judge: customers. If the vision is not going to lead to sales in markets that are large enough, then it’s back to the drawing board.

In summary - it is about chosing the right customers, not just any customers. A wrong customer is one who:

Is in the wrong market (not large and/or no repeatable sales)
Has unique needs (requirements are not mainstream)
Has no intention of buying when testing is complete (lack of purchase is a negative reference)

4. Focusing on Product Testing

Entrepreneurs who go after customers solely for product feedback fail to see the broader implications of early reference customers. A customer who buys your product is great. A customer who tests your product and does not buy is very bad (negative reference). Entrepreneurs should seek early customers who have a clear need/pain, and are very likely to buy the product after testing (Donna suggests 80% must buy). Early product testing has three main objectives:

The Obvious: Feedback to product development
The Strategic: Selecting customers who will lead to greatest market opportunities
The Tactical: Establishing a base of evangelist customers who will help develop the market and encourage more risk-averse customers to adopt the solution.

5. Other Common Mistakes

Other mistakes Donna lists, which wont be covered in detail here, include:

Selling consulting projects
Ramping sales burn before product is ready
Ramping development before market is ready
Product insufficiently defined

In summary, entrepreneurs don’t have time or money to wait for products to sell themselves. Success or failure hinges on developing the market as you develop the product.

I hope some of you out there find Donna’s advice helpful, and I encourage you to seek out her expertise on marketing in high-tech startups.