This article includes excerpts of an article by Tom Eisemann
8/10 startups fail to make product-market fit, which is the basis for long term sustainable growth within any business. There are lots of reasons for this which I won’t go into today, but one of the big killers of startups is failing to complete the problem-solution fit stage of the discovery process, leading to something called “False Starts”.
The first stage of the startup process is getting to a problem/solution fit. The central premise of this is matching a valid customer problem to a business idea. Although this is a vital stage, it never fails to amaze me the number of entrepreneurs who fail to follow this crucial first step and instead jump straight into building a product. We hear comments like, “Start with an MVP (Minimum viable product),” which assumes that you understand the problem and customer space well enough to develop your first idea — even in a prototype form.
I have long been an apostle of the lean start-up approach. But as I dug deeper into case studies of failure, I concluded that its practices were falling short of their promise. Many entrepreneurs who claim to embrace the lean start-up canon actually adopt only part of it. Specifically, they launch MVPs and iterate on them after getting feedback. By putting an MVP out there and testing how customers respond, founders are supposed to avoid squandering time and money building and marketing a product that no one wants.
Yet by neglecting to research customer needs before commencing their engineering efforts, entrepreneurs end up wasting valuable time and capital on MVPs that are likely to miss their mark. These are false starts. The entrepreneurs are like sprinters who jump the gun: They’re too eager to get a product out there. The rhetoric of the lean start-up movement—for example, “launch early and often” and “fail fast”—actually encourages this “ready, fire, aim” behaviour.
The online dating start-up Triangulate experienced this syndrome in 2010. Its founder, Sunil Nagaraj, had originally intended to build a matching engine—software that Triangulate would license to existing dating sites such as eHarmony and Match. The engine would automatically extract consumers’ profile data—with their permission—from social networks and media sites such as Facebook, Twitter, Spotify, and Netflix. The engine would then use algorithms to pair up users whose tastes and habits suggested that they might be romantically compatible. But VCs wouldn’t back the plan. They told Nagaraj, “Come back after you’ve signed a licensing deal.”
To prove to potential licensees that the matching engine worked, Nagaraj decided to use it to power Triangulate’s own dating site, a Facebook app that would also leverage the rich user data available to Facebook’s platform partners. VCs now showed interest: Nagaraj raised $750,000 and launched a dating site called Wings. The site was free to use and earned revenue from small payments made by users who sent digital gifts or messages. Wings soon became Triangulate’s main event; the licensing plan went on the back burner.
Wings automatically populated a user’s profile by connecting to Facebook and other online services. It also encouraged users to invite their friends to the site as “wingmen” who could vouch for them—and provide a viral boost to the site’s growth. Less than a year after launching Wings, however, Nagaraj’s team abandoned both the matching engine and the wingman concept. Users found more value in recommended matches that were based on potential partners’ physical attractiveness, proximity, and responsiveness to messages—criteria routinely employed by existing dating sites. The wingman role, meanwhile, was not delivering hoped-for virality and made the site cumbersome to navigate. Furthermore, many users were uncomfortable making their dating life an open book to their friends.
A year after launch, Wings’ user base was growing, but user engagement was much lower than expected. As a result, revenue per user fell far short of Nagaraj’s original projections. Also, with limited virality, the cost of acquiring a new user was much higher than his forecast. With an unsustainable business model, Nagaraj and his team had to pivot once again—this time, with cash balances running low. They launched a new dating site, DateBuzz, that allowed users to vote on elements of other users’ profiles—before seeing their photos. This addressed one of the biggest pain points in online dating: the impact of photos on messaging. On a typical dating site, physically attractive individuals get too many messages, and other users get too few. DateBuzz redistributed attention in ways that boosted user satisfaction. Less-attractive individuals were contacted more often, and attractive users still got plenty of queries.
Entrepreneurs should conduct a competitive analysis, including user testing of existing solutions, to understand the strengths and shortcomings of rival products.
Despite this innovation, DateBuzz—like Wings—had to spend far more than it could afford to acquire each new user. Lacking confidence that a network effect would kick in and reduce customer acquisition costs before cash balances were exhausted, Nagaraj shut down Triangulate and returned $120,000 to investors.
So why did Triangulate fail?
The problem was clearly not with the jockey or his bedfellows. Nagaraj had raised funds from a topflight VC and had recruited a very able team—one that could rapidly process user feedback and in response iterate in a creative and nimble manner. Weak founders rarely attract strong teams and smart money. This was not a case of “right opportunity, wrong resources,” as with Quincy’s failure. Rather, Triangulate’s demise followed the opposite pattern: “wrong opportunity, right resources.”
A clue about the cause of Triangulate’s failure lies in its three big pivots in less than two years. On one hand, pivots are foundational for lean start-ups. With each iteration, Nagaraj’s team had heeded the “fail fast” mantra. The team also followed the principle of launching early and often—putting a real product into the hands of real customers as fast as possible.
But there’s more to the lean start-up approach than those practices. Before entrepreneurs begin to build a product, lean start-up guru Steve Blank insists, they must complete a phase called “customer discovery”—a round of interviews with prospective customers. (See “Why the Lean Start-up Changes Everything,” HBR, May 2013.) Those interviews probe for strong, unmet customer needs—problems worth pursuing. In Nagaraj’s postmortem analysis of Triangulate’s failure, he acknowledged skipping this crucial step. He and his team failed to conduct up-front research to validate the demand for a matching engine or the appeal of the wingman concept. Nor did they conduct MVP tests akin to Quincy’s trunk shows. Instead they rushed to launch Wings as a fully functional product.
By giving short shrift to customer discovery and MVPs, Triangulate’s team fell victim to a false start—and turned the “fail fast” mantra into a self-fulfilling prophecy. If the team members had spoken to customers at the outset or tested a true MVP, they could have designed their first product in ways that conformed more closely to market needs. By failing with their first product, they wasted a feedback cycle, and time is an early-stage entrepreneur’s most precious resource. With the clock ticking, one wasted cycle means one less opportunity to pivot before the money runs out.
Why do founders like Nagaraj skip up-front customer research? Entrepreneurs have a bias for action; they’re eager to get started. And engineers love to build things. So entrepreneurs who are engineers—like Nagaraj and his teammates—often jump into creating the first version of their product as fast as they can. Furthermore, at the risk of stereotyping, I’d offer that many engineers are simply too introverted to follow Blank’s advice and get out of the building to learn from prospective customers.
Founders without technical training also fall victim to false starts. They hear repeatedly that having a great product is crucial, so they bring engineers on board as soon as they can. Then, feeling pressure to keep those expensive engineers busy, they rush their product into development.
The good news is that false starts can easily be avoided by following a structured, three-step product design process.
1. Problem definition.
Before commencing engineering work, entrepreneurs should conduct rigorous interviews with potential customers—at which they resist the temptation to pitch their solutions. Feedback on possible solutions will come later; instead, the focus should be on defining customers’ problems. Also, it’s important to interview both likely early adopters and “mainstream” prospects who may be inclined to purchase later. Success will hinge on attracting both groups, whose needs may differ. If their needs do vary, entrepreneurs will have to take the differences into account when formulating a product road map.
In addition, entrepreneurs should conduct a competitive analysis, including user testing of existing solutions, to understand the strengths and shortcomings of rival products. Likewise, surveys can help start-up teams measure customer behaviours and attitudes—helpful data when segmenting and sizing the potential market.
2. Solution development.
Once entrepreneurs have identified priority customer segments and gained a deep understanding of their unmet needs, the team’s next step should be brainstorming a range of solutions. The team should prototype several concepts and get feedback on them through one-on-one sessions with potential customers. Most teams start with crude prototypes, reject some and iterate, and then refine the ones that seem promising, gradually producing “higher fidelity” versions that more closely resemble the future product in functionality and look and feel. Prototype iteration and testing continue until a dominant design emerges.
3. Solution validation.
To evaluate demand for the favored solution, the team then runs a series of MVP tests. Unlike the prototype review sessions during step 2—conducted across the table with a single reviewer—an MVP test puts an actual product in the hands of real customers in a real-world setting to see how they respond. To avoid waste, the best MVPs have the lowest fidelity needed to get reliable input—that is, they provide no more “looks like” polish and “works like” functionality than are strictly necessary. Early MVP tests may take things further, assessing demand for a planned product through a Kickstarter campaign or by soliciting letters of intent to purchase from business-to-business customers.
Success with the product design process may require a shift in the founders’ mindset. At a venture’s outset, many entrepreneurs have a preconceived notion of the customer problems they’ll address and the solutions. They may fervently believe they’re on the right path. But during the product design process, they should avoid being too emotionally attached to a specific problem-solution pairing. Entrepreneurs should stay open to the possibility that the process will uncover more pressing problems or better solutions.
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