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The New Rules of Early-Stage Product Development (MassChallenge / Skolkovo)

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Slides from my workshop delivered in Moscow to Skolkovo Super League companies, as part of the MassChallenge entrepreneurship "bootcamp". "The New Rules of Early-Stage Product Development" introduces a framework called the "Product / Market Fit Matrix", which is used by early stage companies to help them find product / market fit, based on their starting point of how strong their initial hypotheses of the market are.

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The New Rules of Early-Stage Product Development (MassChallenge / Skolkovo)

  1. 1. 1 The Rules of Product Development MassChallenge / Skolkovo Super League Sep 10, 2014 Rishi Dean | @rishidean
  2. 2. 2 Most startups fail
  3. 3. Source: h"p://bit.ly/ startupfailurerates 3 6 in 1000" funded
  4. 4. Source: h"p://bit.ly/ startupfailurerates 4 60% of those fail," 30% flounder
  5. 5. Source: h"p://bit.ly/ startupfailurerates 5 <10% positive returns," <1% get big
  6. 6. Source: h"p://bit.ly/ startupfailurerates 6 =.01%" “breakout success”
  7. 7. 7 1000x better?" = 10%
  8. 8. 8 WHY?
  9. 9. 9 Run out of money
  10. 10. 10 Run out of money Not enough paying customers
  11. 11. 11 Run out of money Not enough paying customers Not compelled to pay
  12. 12. 12 Run out of money Not enough paying customers Not compelled to pay Product doesn’t meet needs
  13. 13. 13 Product / Market Fit
  14. 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 The old product development model is outdated 14 § Start with a firm vision & plan (MRD) § Compile detailed specs (PRD) § Develop via a “waterfall” model § Converge to a massive “launch” § Let the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. 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 The old product development model is outdated 15 § Start with a firm vision & plan (MRD) § Compile detailed specs (PRD) § Develop via a “waterfall” model § Converge to a massive “launch” § Let the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. 16 The biggest false assumption is that you know what you’re doing
  17. 17. 17
  18. 18. 18
  19. 19. 19
  20. 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. 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. 22 Accept it, you’re not Steve
  23. 23. 23 …but even he fails sometimes
  24. 24. “the greatest perfection is imperfection” -Lucilio Vanini 24
  25. 25. 25 Product / Market Fit
  26. 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. 27. Asking whether you’ve achieved product / market fit is 27 like asking how you know when you’re in love
  28. 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. 29 But how do you get there?
  30. 30. 30 Start with your customer
  31. 31. 31 YOU are the customer You are close to the customer You are not the customer
  32. 32. 32 A “tail” of two customer types
  33. 33. 33 The Product / Market Matrix
  34. 34. 34 Characterizing your situation Market Hypothesis Product Hypothesis Untested Validated Validated Untested
  35. 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. 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. 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. 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. 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. 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. 41 Some things are common
  42. 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. 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. 44 Use the matrix as a tool
  45. 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. 46 Summing it up
  47. 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. 48 Appendices
  49. 49. 49 The “Chasm” " Understanding dimensions of innovation
  50. 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

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