Musings of a Marketing Maven

Entrepreneurs and new product champions are always looking for the secret to market success. A popular formula is to hire “serial entrepreneurs” who’ve been successful before, assuming that success is transferable from one company to another.

This can be risky. As one 8-time entrepreneur writes,

Since time immemorial a post mortem of a failed company usually includes, “I don’t understand what happened. We did everything that worked in our last startup.” The failure is not due to lack of energy, effort or passion. [Steven Gary Blank, founder of E.piphany]

Too many people get (or take) credit for past successes, when often they were just lucky with market timing. During the wild rush to scale up the company they were surfing the wave, too busy to pay attention to why their company or their product was so successful.

I often hear: “Can you recommend a super sales-and-marketing veteran (or team) who can jump-start our initial sales and guarantee early customer traction?” “Do you know any [local] biz dev people with a proven track record in our industry, and a great set of contacts?”

Or, “How many people should we hire for our founding sales and marketing team? What’s the right mix of on-board staff and part-time contractors?”

The Make-or-Break Questions for Start-ups

While these are important questions, the real bet-the-company drivers are:

• Who are our customers?
• What do they need that we are uniquely qualified to offer?
• Why will they buy our products? How important will our product be to them?
• How much are they willing to pay? (And can we make money offering this service at that price?)
• Given their preferences, what’s the right sales model? How, or through which channels, do they want to buy? What do they expect or need in the way of support — before, during, and after the sale?
• What’s the competitive environment going to look like when we’re ready to launch our product?

According to Steven Gary Blank, founder of E.piphany, “the difference between winning and losing startups is that winners understand why customers buy. Losers don’t.”

In an ugly but remarkably useful book Blank provides market-tested advice on a methodology for fast learning (and fast failing) on the key customer priorities that make or break a company. I highly recommend The Four Steps to the Epiphany: Successful Strategies for Products that Win to my start-up clients. (As well as to people in product management roles with go-to-market responsibilities in larger companies.)

The Business Imperative: Understand Your Customers

In his book, The Four Steps to the Epiphany, Steven Gary Blank details what he calls the customer development process, a multi-stage program with key differences based on the stage of market the company is entering. (Read the book to see how the process unfolds.)

Blank warns that “Customer Development as a separate process from Product Development is a new concept. Not all executives understand it. Not all board members understand it.”

Based on my experience, I concur: this is not accepted yet as the smart way to do things. As a result most startups under-invest in customer development at the times when it can make the greatest difference in their future prospects.

According to Steven Blank, founders who want to increase their chances of success should run the customer development process in parallel with product development (rather than waiting until the product is in final testing before engaging in market probes).

Blank’s methodology identifies the key milestones where the two processes should interlink, so insights and deliverables from each can guide the other. Synchronizing the two processes minimizes the risk that each successive stage of development (or go-to-market) will be over-resourced, relative to market readiness or demonstrated customer interest in your value proposition.

Blank describes the typical end-game of a failed (or skipped) customer development process. Those of us in high tech have all seen it, and many have received pink slips at least once as a result….

The company misses its numbers for a couple of quarters, so the Board (or CEO) directs the VP of Marketing to execute a Hail Mary demand-gen campaign (or worse yet, a big brand building initiative). Inevitably, they fire the VP of Marketing when those efforts fail at getting demonstrable customer traction. Despite heroic grand-standing and emotional speeches to the sales team, the VP of Sales is terminated a few quarters later, after consistent failures to make the numbers. Soon followed by the CEO and other founders…

What’s Wrong with Stage Gate Development?

Many software/solution firms have embraced stage gate development as their official process for product development. While this probably makes sense for disciplined product development, it’s a risky way to bet the company, if you don’t have a parallel investment in customer development and market validation.

According to Blank (and confirmed by my experience), the stage gate process, as practiced, assumes that the market-sizing and customer-centered hypotheses made at the beginning of the development process are largely correct. After all, we love the product — why won’t our customers love it too?

All the go-to-market plans, the staff build-up, and selling and product launch activities proceed on the basis of those assumptions — the original business case which rationalized the product development investment in the first place. As development nears completion, the company scales up sales and customer support resources, hires (or outsources) the core marketing team, and commits to awareness building and lead gen tactics — often well in advance of revenues.

And then when those early forecasts prove overly optimistic, when customers fail to find the value proposition compelling, or the price they’re willing to pay is way out of whack with your cost structure, the house of cards collapses…

Waiting until the product is in the testing phase is too late to begin buyer research (that is, research into buyer pains, the buying process, how customers perceive your value proposition, what they’re willing/able to pay, etc.). Smart companies will validate their concepts and key customer assumptions as early as possible, while there’s still time to adjust to customer needs and priorities.

To find out how and when to engage with customers, to learn why (or how) they’d be interested in buying your product, pick up a copy of The Four Steps to the Epiphany.

A more expensive alternative is to engage a consulting firm that specializes in buyer persona research, and learn from them how to do this.

The third alternative is to skip all this research, believe you’re the next Steve Jobs, and bet the company on the brilliance of your market foresight…