1. 1
The Rules of Product Development
MassChallenge / Skolkovo Super League
Sep 10, 2014
Rishi Dean | @rishidean

2. 2
Most startups fail

3. Source:
h"p://bit.ly/
startupfailurerates
3
6 in 1000"
funded

4. Source:
h"p://bit.ly/
startupfailurerates
4
60% of those fail,"
30% flounder

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h"p://bit.ly/
startupfailurerates
5
<10% positive returns,"
<1% get big

6. Source:
h"p://bit.ly/
startupfailurerates
6
=.01%"
“breakout success”

7. 7
1000x better?"
= 10%

8. 8
WHY?

9. 9
Run out of
money

10. 10
Run out of
money
Not enough
paying customers

11. 11
Run out of
money
Not enough
paying customers
Not compelled to
pay

12. 12
Run out of
money
Not enough
paying customers
Not compelled to
pay
Product doesn’t
meet needs

13. 13
Product / Market Fit

14. The old product development model is outdated
14
§ Start with a firm vision & plan (MRD)
§ Compile detailed specs (PRD)
§ Develop via a “waterfall” model
§ Converge to a massive “launch”
§ Let the sales roll in
Concept /
Biz Plan
Specs (MRD/PRD)
Develop & QA
Launch!

15. The old product development model is outdated
15
§ Start with a firm vision & plan (MRD)
§ Compile detailed specs (PRD)
§ Develop via a “waterfall” model
§ Converge to a massive “launch”
§ Let the sales roll in
Concept /
Biz Plan
Specs (MRD/PRD)
Develop & QA
Launch!

16. 16
The biggest false
assumption is that you
know what you’re doing

17. 17

18. 18

19. 19

20. 20
Premature scaling kills promising companies
§ Actions don’t correspond to stage
§ Discovery, validation, efficiency, scale, sustain
§ De-synchronized customer, product, team, financials,
business model
§ Executing without a regular feedback loop
§ Not adapting business model to a changing market,

21. 21
The pace of change is accelerating
§ Globalization increases competition
§ Lower technical barriers to entry
§ Increased capital efficiency
§ Cost of acquisition is near zero

22. 22
Accept it, you’re not Steve

23. 23
…but even he fails sometimes

24. “the greatest perfection is imperfection” -Lucilio Vanini
24

25. 25
Product / Market Fit

26. 26
Understanding Product / Market Fit
§ Product satisfies a compelling market need that is
worth solving
§ Market is large enough to build a business
§ Sales are repeatable and scalable
§ >= 40% of customers say they would be “very
disappointed” without your product

27. Asking whether you’ve achieved product / market fit is
27
like asking how you know when you’re in love

28. 28
Actions before and after PMF are very different
Before
After
§ Build the sales, marketing, and
delivery machine
§ Build the company
§ Get big, fast
¡ Customer discovery & validation
¡ Measure, iterate, pivot
¡ Burn as little as possible to
survive

29. 29
But how do you
get there?

30. 30
Start with your
customer

31. 31
YOU are the customer
You are close to the customer
You are not the customer

32. 32
A “tail” of two customer types

33. 33
The Product /
Market Matrix

34. 34
Characterizing your situation
Market Hypothesis
Product Hypothesis
Untested
Validated
Validated
Untested

35. 35
Characterizing your situation
Market Hypothesis
“Technology in search of a
problem”
(MIT)
“Build it and they will
come”
(Apple / 37Signals)
“Many right answers”
(McKinsey)
“Good hypothesis, no
conclusions”
(Lean)
Product Hypothesis
Untested
Validated
Validated
Untested

36. 36
Characterizing your situation
Market Hypothesis
“Technology in search of a
problem”
(MIT)
“Build it and they will
come”
(Apple / 37Signals)
“Many right answers”
(McKinsey)
“Good hypothesis, no
conclusions”
(Lean)
Product Hypothesis
Untested
Validated
Validated
Untested
§ Figure out where you really are
§ Different resources and inputs
will determine your starting point
§ Where you are should dictate
milestones, revenue projections,
funding requirements, etc.
§ Assume you know less than you
do, until revenue proves
otherwise

37. 37
1) Build it and they will come
Market Hypothesis
“Technology in search of a
problem”
(MIT)
Organic startup
(founder / market fit)
“Many right answers”
(McKinsey)
“Good hypothesis, no
conclusions”
(Lean)
Product Hypothesis
Untested
Validated
Validated
Untested
§ You are the customer
§ Firm vision + iterative releases
(e.g. 37Signals)
§ Works in incremental or
evolutionary innovation (slicker,
quicker, better, cheaper)
§ Technology-driven problems
(e.g. cure cancer) where
“invention risk” is the key

38. 38
2) Technology in search of a problem
Market Hypothesis
Rigorous market
exploration
“Build it and they will
come”
(Apple / 37Signals)
“Many right answers”
(McKinsey)
“Good hypothesis, no
conclusions”
(Lean)
Product Hypothesis
Untested
Validated
Validated
Untested
§ Identify key markets with
compelling dynamics
§ Pick a few applications /
markets and identify a
hypothesis to solve for
§ Look for markets primed for
speed of innovation diffusion
§ Understand the flow of $ and
inject into an existing pattern

39. 39
3) Many right answers
Market Hypothesis
“Technology in search of a
problem”
(MIT)
“Build it and they will
come”
(Apple / 37Signals)
Prototype and expand
“Good hypothesis, no
conclusions”
(Lean)
Product Hypothesis
Untested
Validated
Validated
Untested
§ You are close to the
customer
§ Lead users are easiest
path: transform an ad-hoc
solution to something
mainstream
§ “Imaginary assistant” notion
§ Personae development
§ Design thinking + agile
development

40. 40
4) The truly lean startup
Market Hypothesis
“Technology in search of a
problem”
(MIT)
“Build it and they will
come”
(Apple / 37Signals)
“Many right answers”
Hypothesis, test, learn(McKinsey)
Product Hypothesis
Untested
Validated
Validated
Untested
We
Believe
We’ve
Tested
We’ve
Learned
§ The faster you can move around
this loop the faster your
learnings accrue

41. 41
Some things are
common

42. 42
Early stage startups live in uncertainty
Market Hypothesis
“Technology in search
of a problem”
“Build it and they will
come”
“Good hypothesis, no “Many right answers”
conclusions”
Product Hypothesis
Untested
Validated
Validated
Untested
§ Disruptive companies with an
unproven market have inherent
uncertainty
§ Starting point differs depending
on available resources – goal is
the same
§ Not mutually exclusive models –
overlapping principles:
§ Prototyping
§ Customer development
§ MVP

43. 43
Mix qualitative and quantitative approaches to
increase speed
Market Hypothesis
“Technology in search of a
problem”
(MIT)
“Build it and they will
come”
(Apple / 37Signals)
“Many right answers”
(McKinsey)
“Good hypothesis, no
conclusions”
(Lean)
Product Hypothesis
Untested
Validated
Validated
Untested
§ Data-driven feedback
matters more to help find a
market
§ With a strong sense of the
market, experience,
“intuition” and the synthesis
of qualitative feedback drive
the process
INTUITION
/
QUALITATIVE
DATA
/
QUANTITATIVE

44. 44
Use the matrix
as a tool

45. 45
Achieving PMF is a journey
Market Hypothesis
“Technology in search of a
problem”
(MIT)
“Build it and they will
come”
(Apple / 37Signals)
“Many right answers”
(McKinsey)
“Good hypothesis, no
conclusions”
(Lean)
Product Hypothesis
Untested
Validated
Validated
Untested
§ You will move between blocks
as business / market evolve, or
diversity across product lines
§ You can remove uncertainty
over time, but uncover others as
you dig deeper

46. 46
Summing it up

47. 47
Product / market fit is the only priority in early
stage startups
§ Have a hypothesis but embrace your ignorance
§ Pick the right starting point / approach to achieve PMF
§ Set the business goals accordingly
§ Travers the matrix FAST
§ Prototype, listen, measure, learn, iterate
§ THEN scale up the business

48. 48
Appendices

49. 49
The “Chasm” "
Understanding dimensions of innovation

50. 50
Identifying markets primed for speed"
7 factors of innovation diffusion rates
1)
Relative Advantage
How much better is your innovation than the incumbent solution?
2)
Compatibility
How easily can your innovation fit with the existing infrastructure and
ecosystem?
3)
Complexity
Is your innovation easy to adopt and use, relative to the current method?
4)
Observability
How easily can customers see the differentiation and benefits of your
product?
5)
Trialability
How easy can customers pilot or test your product?
6)
Social Acceptability
Does your product impact current social norms?
7)
Regulatory
Are there legal or bureaucratic issues related to your innovation?
Source:
h"p://bit.ly/diffusionofinnova9ons