Patrick Vlaskovits, the co-author of The Entrepreneur’s Guide to Customer Development, has been in the technology industry for over a decade now. Although he worked on a few startup that didn’t turnout successful, he continued with his entrepreneurial passion. During those days, he came across Steve Blank’s book, The Four Steps to the Epiphany and that changed the way he perceived startups and what building a startup meant. In fact, after rigorously applying the CustDev methods on a new startup idea, he began to understand the core of the methodology. Later Patrick, along with Brant Cooper, went on to write The Entrepreneur’s Guide to Customer Development – a “cheat sheet” to The Four Steps to the Epiphany.
Today, The Entrepreneur’s Guide to Customer Development is one of the best learning resources and must read book for tech co-founders. That’s not all! Patrick also co-organizes LA Lean Startup Circle and is again busy with his new startup.
Again, Patrick, who also blogs here, was introduced to us by Dan Martell, Co-founder of Flowtown, and he agreed to speak to us about customer development and other aspects of startups on Foundora. And, in this audio transcribed interview, Patrick speaks about his first venture he used to test Cust-Dev, customer development methodology, lean startup methodology, pricing, and a lot more.
Sure, the most relevant place to start is – two startups ago, a friend of mine and I tried to do a sort of Evite meets Social Networking thing. It was quite funny because we didn’t know what we were doing. Looking back, we did absolutely everything wrong. It was a total disaster, total mess and a tremendous waste of money and time. In fact, in retrospect, it is quite embarrassing. Our friendship survived that but the startup itself was a complete disaster, however the experience was very educational.
After that, I wanted to do another startup and about the same time, I read Steven Blank’s book “The Four Steps to the Epiphany” and that really changed my perspective about how startups should be built.
When was this?
At the end of 2007 – early 2008, we started the first one and then the second one in 2008-2009. At this point, unfortunately I already had two startup failures to my name but both incredibly educational. And, it was the second one where we used the letters of intent and screen-shots to validate the idea. We got that idea directly after reading Steve’s book — we did this because we really wanted to test Customer Development to see if that would actually make sense for us.
Our idea was for a web-based social networking tool for trade organizations and professional organizations that would complement existing offline networking — we wanted to validate to some level that we would get paid for this and it had some value. We didn’t just want to build it and give it away for free. We didn’t want to take the typical “Build it and They Will Come” approach…and hopefully pay for it. We mocked up some screenshots with a designer’s help. With Photoshop, we made it look like web app and then we got warm introductions and did some cold calling. We got in front of the people, tried to describe the problem we thought we were solving and why our solution would help.
What was really important to me is – instead of asking people what would they might pay or what they might like to pay or how much they think it might be worth, I thought putting people into a situation where there is a consequence to their decision is a much truer signal, a much more honest signal. So, we wrote up these very simple Letters of Intent that said “Ok, if you sign this letter of intent then you agree to use this. You got to pay this much. It’s going to do x, y and z.”
Our intention, in the meantime, was that we wouldn’t code anything; nothing would be coded until we had two or three signed Letters of Intent and then that happened. We did manage to sign some people, went back and coded it and had them use it. For the situation we were in, it was great in terms of validating the initial, raw idea and getting people to use it and getting them to have some skin in the game. Had we just built it and tried to get people to use it, to be fair, that may have worked as well but I don’t like that approach as much as I would like some sort of hard validation.
Foundora Quick Note: You can find a detailed case-study here on the Lean Startup Wiki.
I think we definitely pushed the boundaries and this is going to be a very unsatisfactory answer and for people who don’t agree with me, it is unlikely to persuade them. But, you know, people do these things all the time. We didn’t invent this method, we were trying to minimize our risk. Even when you go to people and talk, you say, “I have an idea and I want you to use my product and I am going to come back to you after 6 months or 3 months” from now. People – your potential customers – often will also push ethical boundaries as well. They’re likely to say, ”Oh yes, we would love to use it.” but at the end of the day, no one uses it. But two wrongs don’t make a right – of course not.
However, we really wanted to minimize and mitigate risk as much as possible in this case. Our intention was to build the product and we did and we didn’t see any real downside risk to the customers. In fact, once we started talking about our product and the problem we were solving, we often opened the doors to this whole new world to them and they would immediately go Google our competition. At that time, there were quite a few players in that space. We actually introduced them to our competitors in a roundabout manner. So, we actually provided a lot of value.
I don’t think it was unethical; I consider myself a very ethical person and there wasn’t any harm to the customers. Entrepreneurs have been doing this for thousands of years – sort of faking it and making it. And, I am sure this is nothing new. I think the best entrepreneurs kind of intuitively understand the value in these approaches in the right time and in the right context.
What motivated Brant and I to write it is that we love the book. If you talk to people who have read the book, you find for the most part, these people are very passionate about the book. I know I certainly am. I still have it on my desk. I leaf through it every few days and constantly use it as a reference. It is a fantastic book and I know Brant feels the same. Whoever reads the book, loves it. I have recommended the book to hundreds of people but I got very few people to actually read it. The book really makes you earn the knowledge and wisdom within it to understand it. That book is simply very dense with so much wisdom and insight about how to go about building a scalable startup into a big business.
Brant and I thought, if we could distill the basics of Customer Discovery down into a “cheat sheet” we could add a lot of value and really help mainstream Steve Blank’s ideas. We did this because they are big ideas, great ideas and they are powerful ideas. We also wanted to add the current thinking about related things like Eric Ries’ Lean Startup, Dave McClure metrics stuff, Sean Ellis thoughts around “40% rule,” things that were in the same space and clearly related and wanted to introduce people to this.
Clearly, what we wrote is not “The Four Steps to the Epiphany”. I want to emphasize: Our books is not supposed to be a replacement for it. We wanted to produce a very digestible, to-the-point introduction to Customer Development and wanted to focus on customer discovery because that is something I know well – this was the number one reason.
And two, Customer Discovery is the first step and most of the startups will never get past it. Just getting out of the building and questioning your assumption, if you can do that well — 90% is done of what you need to do. And that’s what really motivated us to spread the word about what Steve Blank has codified in “The Four Steps to the Epiphany” and make it little more digestible and allow more people to get access to it.
Foundora Quick Note: You can download the first 45 pages of The Four Steps to the Epiphany here.
How did Brant Cooper come along with you on this? Can you tell us about that?
Sure, Brant is a marketing consultant, and a Customer Development practitioner and coach down in San Diego. I live in Newport Beach so we are about an hour apart, we are both in Southern California but spend a lot of time in the Silicon Valley; Brant is a ridiculously intelligent guy. He has come across similar sort of methods; he had read some papers that were similar in approache to Customer Development; I think they were called sales and R & D. We actually met on the Lean Startup Circle Google group that’s run by Rich Collins. BTW that’s a great source for anyone interested in Cust-Dev / Lean Startups. He was applying these customer development methods in his consulting practice and he is also a fantastic writer, in fact much better writer than I am.
So, we are both passionate about this, we really loved Steve’s book and we were in the same area and we thought why don’t we collaborate on this book and get this book out. I think it was a great collaboration. It was a very complementary fit of skill sets and tactics.
Also, just to plug Brant, if anyone needs any Customer Development consulting, Brant is the person to go to. There are also other people one can go to, but I am bit biased towards my co-author. Anyway, that’s how we came about doing it; we reached out to some of the people in the Bay Area like Eric Ries, Steve Blank himself, Hiten Shah and others and they all encouraged us and then we went about writing it and finishing it.
Okay, let me give you my take. I think Customer Development is about two meta-rules, two meta-principles – Firstly, you need to get out of the building as Steven Blank puts it and secondly, you need to question your assumptions. You know, we all hold assumptions about how if we write a business plan, about how we are going to acquire our customers, about what they’re going to find value in, what the value proposition is, what the price will be etc. This happens whether you do Customer Development or whether you don’t. We humans create these hidden assumptions. The point of Customer Development is to challenge what Eric Ries calls one’s “shadow beliefs.”
Let’s say, I am going to build a web app and I am going to acquire customers on the web using SEM and SEO. Great! Now, let’s actually test that set of assumptions because as it turns out that there are lot of people much smarter than I am who have wasted millions and millions of dollars and lots of time because they haven’t bothered to validate and test these sorts of assumptions and stubbornly clung to their so-called business “plan”.
At the end of the day the simplest form is to get out of the building and find the facts that exist about your customers, markets and products and secondly, question your assumptions. What Steve describes in “The Four Steps to the Epiphany,” is a method of doing that in four stages but when Brant and I sat to talk to Steve about this, Steve himself said, “if I can convince people just to get out of the building, they have done 90% of what needs to be done.” And, getting out of the building means getting out and talking to humans about the problem, the solution and the product. It’s not feature mongering, it’s not market research, — it’s trying to really find the pain points and depending on who you are, this can be pretty difficult or very easy. I am a very gregarious guy, I like talking and perhaps too much, so I find it fairly easy to get out of the building.
Some engineering types will do anything to not get out, to not get away from behind the computer. They will push surveys at people, but they won’t get out of the building. If you are not getting out of the building, in my opinion, you are not doing customer development. You got to go find real human beings and talk to them. It’s not about, “Hey, I am building a product, what features do I need.” It’s talking and understanding their pain points, their fears. In fact, I spoke to an entrepreneur the other day and he said he tries to zeroing on what they are fearful of and that was something very interesting and something I had not thought of either until recently.
Dan Martell, whom you interviewed, has a really great phrase. He says, “you need to get their reality,” you have to understand what their reality is, the reality at their workplace. That’s a very succinct way of putting it. You have to understand how they solve their problems, what motivates them, why they have these problems, and understand where they are coming from and Customer Development is one way to do that.
Now, is it applicable for all businesses? Certainly not. Now, there should a discussion about what sort of risks are you taking in your startup. Market risk or technology risk? I don’t think this is something that should be done for all businesses. For example, if you are starting a pizza chain here in the United States and you are going to franchise a pizza parlor, you don’t need to do Customer Development. There is already a play book written for you how to do a pizza parlor almost anywhere in the United States. There’s market risk but it also has been mitigated in terms of how you handle it. But, for technology, scalable startups, there is yes, technology risk, but market risk is greater most of the time.
Can you please brief us a little about the other three steps?
The three other points are Customer Validation, Customer Creation and Company Building. One of the most important points is that some people don’t really understand is the pivot that Eric Ries has talked about for long time and now is becoming very popular, is the link between Customer Validation and Customer Discovery. The first time I saw it, was on Eric Ries’ blog but now other people have sort of adopted it. If you do not understand the link, you are missing the point of Customer Validation. Let’s say, your business model is not quite there, you would have to pivot. Pivot is a great analogy for this because you are going to keep one foot rooted in what you know and change one segment or one bit of your business model. Unfortunately, some people don’t understand this.
We try to make it clear in graphics that we produce for the book that the pivot is an essential part of Customer Validation and if you don’t get it right you should probably go back to Customer Discovery. Now, I personally have never had the experience of Customer Creation, and Company Building. So, that’s why we lean very heavily on Customer Discovery. Also, first of all we don’t really address the other three in the book as they come after you get near the state of Product/Market fit, these are separate problems. What’s really important to note, in my opinion, is that in a sense, these are four buckets for four different types of problems. It’s important to be addressing the right problem at the right time. In other words, as some people say “nail it before you scale it”.
So, scaling is the third step i.e. Customer Creation. The whole point in Steve’s book is that – you don’t want to be prepared to scale if you haven’t sold anything. You are solving the wrong problem at the wrong time. This is something Eric Ries also has talked a lot about where you make sure you are solving the right problem at the right time and you have right action for the right time. That’s really how I am trying to distill these four steps in the simplest way possible and that’s the way I see it.
So it’s more like the science of building a successful startup?
It is clearly applying the scientific method to building a startup but it can’t be pure science, and pure ‘logic’. You are always going to have absolute need for founder vision. There is absolutely an art to being a successful entrepreneur, I, for one, am still trying to figure it out. Not everything can be distilled into a spreadsheet. For example, Steve Blank has a presentation where he talks about why accountants don’t run startups.
There’s absolutely some intangible quality about being a successful entrepreneur and customer development accounts for that and melds the art of being an entrepreneur with the science of being an entrepreneur. But, what I do want to communicate is that it’s not simply applying scientific methods to entrepreneurship because entrepreneurship has an artistic quality to it. You can see it in the best entrepreneurs but at same time you want to apply logic and reason and scientific method where appropriate. In my opinion, Steve has done an amazing job in describing a method to do that.
Lean startup methodology is something that Eric Ries created and he has many insights on it. But, what I take away from Eric about lean startup is the fundamental insight that “when the problem and solution are both unknown as tends to be the case with Internet startups, ‘you need to bring agile development into a successful feedback loop’ based on the OODA (Observe, Orient, Decide & Act) loop so you can learn as you build. A lot of the people, in my opinion, miss the fact that Eric is really talking about starup epistemology: what we “know” it and how we “know” information important to startups and in my opinion, he has made a fundamental insight by pointing out that when you have a startup you actually don’t know a lot.
You may think you know a lot but fundamentally the problem and solution are both unknown. So, this is one way to deal with the chaos and uncertainty of the knowledge at hand and perhaps maybe a very high-brow way to describe Lean Startups but I think the reason I mentioned is that a lot of people still don’t understand it. They are excited about Customer Development; they are excited about Agile Development; they say these two things sound good together. But there is a reason why Eric has melded those two into the Lean Startup methodology.
I am a big proponent of understanding why you are doing something. A lot of people want to do Customer Development or Lean Startup but before they do — they should try to understand why it’s a good method or why it’s not a good method. And, my answer, Eric deserves tremendous credit for identifying the fundamental link between Customer Development and Agile Development. Again, the problem and solution being unknown, we like to pretend we know it.
We talked about the customer development getting out of the building, talking to the customers, how shall one start and make the customer speak whatever they want about the product? How to get them involved in customer development? What is your experience in it?
That’s a great question. First, you need to find the early evangelists. You will find those people as Steve Blank describes them – they have problem and are looking for a solution. They probably have some sort of home grown solution, they also have the budget and they have the pain. If you can find those people, those people are very motivated to help you in building a better solution. If you find some people who may have the pain but don’t have the budget or are very satisfied with status quo, those people tend to be very difficult to engage in real customer development. So initially, find the early evangelists and early adopters and work with them to understand them and their pain. It’s not about asking what features they need, it’s about understanding their pain.
That’s a very crucial step and most people miss that about Customer Development and lot of people think “I just go talk to people I will go home and build that.” That will very, very quickly lead to chaos.
You won’t be reducing entropy but actually increasing entropy. It’s you who has to understand the pain and these early evangelists tend to be pretty good about describing their pain and potential solutions for the pain.
So, when you talk about their pain, it becomes pretty easy to make them talk about your product and solution?
Exactly. I have some ideas I am working on right now. So, what I look for whenever I do Customer Development is I look for what people are saying to you verbally and non-verbally. That is a data point but often people say something to you like “yeah, it’s a great idea” or “yes, I would like to do this” but they say in a very flat tone or without emotion. When people get excited, their eyes get bigger and their passion in their voice is seen. They start leaning forward and they start pounding the table and these non-verbal cues are very important. That’s why you have to get out of the building, by the way. That happens only when you can really hear their pain. For example, I was actually describing this to a friend of mine who is not into technology. He is a management consultant.
I was describing the difference between so-called vitamins and so-called pain killers when it comes to software solutions and we started talking about a problem he has at his job. It was funny because as soon as he started describing his problem, he started getting very emotional about how he needs to fix it. He doesn’t know how to fix but just knows he needs to fix fit. It’s about pain and perhaps even about fear. You know these, in my opinion, these non verbal cues mean a tremendous amount and if someone sounds interested but they are not shoving money at you to fix their problem it’s likely they are probably satisfied with the status quo and are not going to pay to solve the problem.
One startup idea that I have been working on was a scheduling software application for a specific market segment, that’s what I have ran into and I am almost ready to kill that idea because I found that there is not a lot of passion, there is not a lot of pain. I have not been able to uncover it. In fact, in my opinion, the beauty of Customer Development is to try to find the pain and if you can’t find the pain then move on to something else whether it’s a pivot or it’s a completely different idea. The idea is that you have saved your own time, your own blood, sweat, tears and you have not poured your life into something that is not going to generate return. Also, the thing a lot of people miss in Customer Development and Lean Startup is that – you need to iterate and pivot, and that’s something most people don’t understand or miss.
I have a Masters in Economics and we definitely studied price theory in economics. Price, from an economic point of view, is just a mechanism to distribute products and services but in the real world, it is so much more than that. I have personal fascination for pricing. I don’t claim to be an expert in any shape or form on pricing. There are a lot of better trained and smarter people than I am. However, I do feel that Customer Development around pricing is crucial. There are other dimensions that need to be examined depending on if you are a freemium play or not; if you are a network effect business or if you are B2B or B2C. Those things all have a lot of bearing on your pricing model.
But, instead of me trying to give you a method about how to find pricing, ultimately, you want to test pricing. Now, Steven Blank describes on his blog how to do certain B2B or enterprise sales testing and he has got some very good methods for that (Can you point us to the posts). Sean Ellis has a great blogpost on pricing as well. The thing, I guess I want to highlight, is I want people to get away from being afraid about talking about pricing with their customers. More than a few so-called entrepreneurs are actually afraid to price their products which I find sort of insane. If you are delivering value, there’s no problem in reaping some of that value.
What we did with our Letters of Intent was – we literally went into one meeting and said its going to be X00 dollars per month and we got it signed and we went into the next meeting and said its going to be Y00 dollars per month. We did very crude type “split”-testing as far as what we could get and we also tried to figure who actually is the economic buyer, and who is the user, who has the pain, who is buying the product and all these are important in pricing decisions.
A friend of mine has a very successful SaaS startup. He initially actually took people’s credit card numbers but did not charge them. He wanted to test pricing before building billing backend to it. He described debates he had with his team about this, “Oh, we can’t test pricing until we can actually process payment.” He replied, “but we can test pricing conversion and we don’t have to charge anyone. And in the meantime, we would have validated learning about pricing.”
It depends on your product and customer. Every situation is little bit different. My preference is that people pay as soon as possible. So, if you have an MVP and customers derive value, they should be paying you for it. That’s for multiple reasons. You are creating value, you are learning about how to price your product, not only what to charge but how to charge, is it monthly or based on usage? My preference is that people be charged as soon as possible. However, there are good arguments made for not charging. For example, your early evangelists and holding off till you feel your MVP is in second or third generation of your MVP.
It depends on your customers, depends on what works for them and what doesn’t work for them. Every situation is different. I have a preference but there are certainly good arguments for holding up pricing till the last possible moment in some ways. Customer development is not deterministic or paint-by-numbers. We have our preferences, rules of thumb, but every situation is different at the end of the day.
It was an appointment schedule tool idea I had for a certain segment and to be honest it’s not really fair to call it a startup, it’s more of a project. At this point, I am about to put a bullet into it because I have not been able to uncover a real pain point.
Cindy Alvarez has great customer development blog she maintains while she works for KissMetrics and she and I talked yesterday. She made a point that if people are satisfied with status quo, that’s a very strong signal and that’s absolutely true. The project I was working on people are satisfied with status quo even though I as an outsider, see it very much inefficient and needing of technology. The actual people I wanted to sell to certainly don’t see it that way. For me, I need to find pain.
My advice would be to just go do it. I think everyone should read Steve’s book “The Four Steps to the Epiphany.” I think we also did a pretty good job at Entrepreneur’s Guide to Customer Development. I recommend reading all the great blogs including Steve Blank’s blog, Eric Ries’ blog, Sean Ellis’ blog, Dave McClure doesn’t blog that often but where he does, he’s got great stuff. I am sure I am forgetting a number of other great blogs.
Firstly, read all these great blogs but at the end of the day you got to go do it. I am a person that really learns by doing. You just got to force yourself out of the building and go do it even if it’s a few customer interviews. You got to go do it to practice it, to learn it.
You can read all you want but at the end of the day as Steve says, “Get out of the building” if you want to garner a deep insights by talking to customers who are going to break some of your assumptions, my advice would be get out of the building and do it and that alone will get you very far.
Special thanks to our voluntary transcriber: Afshan Khan