The truth about your business model is outside, which is why we need to get out of our buildings and talk to our customers. Here is a couple of questions I ask myself before I actually step out:
Make this moment count
- Why am I doing this batch of interviews (the topic of this post)?
- Who should I talk to?
- What to talk to them about?
- Where are my customers (how to reach them, how quickly can I produce a list of concrete names)?
- How will I contact them (e-mail/phone script), carry out the interview (interview script), and process results?
Watch out: although I am suggesting to take some time to think about these questions, over-thinking is known to happen. The whole point of interviews is to get feedback so you can iterate. Fast. Seriously, go and start scheduling.
Answering the first question – Why? – is really the first step. So, why bother?
With a new business, you’re hoping to have invented mechanics of a money making machine (= your business model). You are interviewing to validate these mechanics. You do that by testing the most risky hypotheses you are making about them.
By now, you should have not only sketched your business model, but thought deeply about its different aspects. If you haven’t done that already, I’d suggest you put your thoughts in a short presentation you can tell in 3-5 minutes. Then start presenting to get feedback. Start with friends and colleagues, anyone willing to listen. Try to get more experienced people’s opinion too, it will save you lots of time. I’ve been doing this for almost four months now. It is because I learned so much from this process that I’m putting it out here. A mistake I made was to wait too long to talk to my actual customers.
So you got your business model story down. You’ve got feedback. What you need to do now is think about the biggest risks. The good news is that there’s a way to think about risks. There’s a certain order and priority. Inspired by Ash Maurya’s top 3, here are my top 5.
1. Customer-Problem: am I solving the right problem? I know your product is cool, but if its a vitamin, rather than a pain killer, consider refining the problem, or searching for a different customer where the problem is clearer.
When we started with Grant Snap, we wanted to improve “collaboration” in consortia applying for research grants: a vitamin, not a pain killer. In the meantime, we discovered a real pain: the coordinator of a consortium spends a median of 60 working days chasing everyone and assembling input. What’s even worse, she takes most of the risk, as there is on average only 20% success rate for the biggest grants.
2. Problem-Solution (product): is my major feature solving the identified problem? Do customer think it’s a must have? Are there any barriers to adoption?
I want to make grants accessible to millions of small companies. Level the playing field for the small players. The pain is there, but I discovered a barrier to adoption: small companies are busy and don’t have the time. So, we’ll target the coordinator of big research grants, who’s already spending 60 days on each grant proposal.
3. Product-Pricing: is my price accepted? Can I build a viable business charging it? This is a really difficult one. You can spend much time thinking about the right price. Eventually, you’ll probably have to choose one, and start iterating. So you better start validating the price as soon as possible.
There is a caveat here: asking people whether they would pay for something – especially before your product is demonstrable - is very different from when they have to sign on the dotted line. Or punch their credit card number in your order form. That does not mean you shouldn’t ask. We’re in B2B, so starting these conversations helps us learn if our customer has any budget at all. Or if there is a different economic buyer (who BTW looks at the problem from a very different perspective, and is often more interested in ROI than relieving a personal frustration of the end-user).
4. Customer-Channels: do I have a clear path to customers? You can have a great product and customers willing to pay for it. But if you cannot reach your customers, you haven’t got a viable business yet. Or if it is very expensive to reach them. E.g. long face-to-face sales cycles might not warrant a product with a price tag of hundred bucks.
Internet sales is a wonderful thing. The questions is: where do your customers flock online in large numbers? Also, how do they search for similar products, and do they search at all? The latter is especially true if you are not introducing a product in a well known product category. A completely new type of product requires big marketing bucks to create awareness of. An interview question could therefore be:
Ok, so the problem we talked about clearly resonates with you. Did you already search for solutions? Where? How? Via a search engine you say? Which keywords did/would you use?
5. Growth assumptions: want a hockey stick? Don’t we all! To get there, your business model – your money making machine – has to have a growth mechanism that keeps getting you new customers. In his Lean Startup book, Eric Ries talks about three types of “engines of growth”: (1) Sticky – repeat business. Product’s value may even increase by repeat use (think Evernote or Dropbox) (2) Viral – runs on recommendations of existing customers that spread like a viral infection, and (3) Paid – advertising, other type of paid marketing or direct sales.
It seems to me that growth assumptions are difficult to validate using interviews (except a bit of channel validations which we covered). Here’s where you deploy metrics: churn and retention for sticky, viral coefficient (# new customers that sign up per customer – thanks to their recommendation) and customer acquisition cost vs lifetime value for paid.
Thanks for reading this far. What are the your riskiest hypotheses and how do you plan to validate them? Please take a moment to let me know if this post was useful to you and what I’ve missed. I spend hours every week writing, and I’d like it to mean something. I can only learn and improve from your feedback.
IMO, good summarize of the hypothesis to validate. What I miss in this post is a methodology, a kind of canvas to interview the customer. Do you use any? Or do you invent each time?
Ha! This is the topic of my next post
If what you mean is a kind of script you use in the actual interview