Eric Reis is barely over the age of 30, but he’s already a sought-after expert on running startups. His book, “The Lean Startup” came out last year and since then, he’s been profiled in Wired magazine, spoken at SXSW and been a visiting speaker at the campuses of both Harvard & Google.
The book presents a way that companies can waste less time & money in their quest for paying customers. I said waste because Reis rightly criticizes companies of all sizes for how most blunder their way through new product development, spending years in R&D to make products nobody wants. By contrast, Lean Startup companies focus on developing tiny parts of a product using short bursts of effort. The objective is to complete a Build-Measure-Learn loop as quickly as possible, so you can figure out whether you’ve built something the client wants. You repeat this process over and over; the end of one loop tells you enough to determine what the next loop’s objective should be.
As I went through the book and gave a few talks on it, I kept seeing its applications for the marketing function. To give them context, I’ve grouped my takeaways from the book into three stages I always see in a startup’s life cycle.
Reis advocates creating a product pitch as soon as possible. In actuality, this can even be done before the product is built! How can you do this? If you’re making online products, check out Launchrock, a site that let’s people sign up for an invite to beta test your product. This one-page site will give a few words or a short video about your product and ask for their email address. If you set up a site like this and get almost no response, that may show that there’s no market for your product. You’ve failed validation…but you’ve done so without wasting tons of time & money. You’ll emerge from the rejection with enough time and capital to go focus on another startup.
A startup makes it through this stage if they can get a number of customers to say their product has value. This is the value hypothesis and Reis has seen many companies fudge this by making business model spreadsheets and simply assuming clients find value. How do they make this mistake? Let’s say it’s a SaaS product that starts off with a free trial. So for a given number that sign up for the trial and experience the product’s features, some fraction will see enough value to sign up for the paid version. But instead of using testing to gauge what portion will convert or see how this number could rise or fall by changing the amount of information or length of the trial, startups usually just take a wild guess:
“Somewhere in the business model, probably buried in a single cell in a spreadsheet, it speciﬁes the ‘percentage of customers who see the free trial offer who then sign up.’ Maybe in our projections we say that this number should be 10 percent. If you think about it, this is a leap-of-faith question. It really should be represented in giant letters in a bold red font: WE ASSUME 10 PERCENT.” We have to be honest with ourselves that these are assumptions that must be tested out in the marketplace.
If customers in your market say it’s a valid solution to their problem, they’ll likely also give you product feedback. I would urge marketers to listen to what these customers say, being wary not to lean too hard on their feedback for estimating the whole market’s needs. The reason is they may be “early adopters,” not the “mainstream;” market segments coined by another author, Geoffery Moore (see this post for my take on a product stuck at the Moore’s early adopter stage).
We’ve finished dealing with the first stage. In the next post, I’ll cover what lean marketing means to companies in the next two stages, as they settle on their business model and optimize growth.