Thoughts On...

Developing Products for The Fortune 1000 vs. The Fortune 1,000,000

When brainstorming new product ideas to build businesses around it is important to consider what kinds of customers you’ll be servicing. They tend to fall into two categories: the enterprise and the small business. Both are good but each has a tremendous influence in how you develop your product and grow your business. In both scenarios you must undertake customer development and be agile. 

If the goal is to build a product for the enterprise customer development will include reaching out to the decision makers and CIOs. In this scenario the couple of enterprise customers you are working with will have a tremendous influence over your product and may influence your platform decisions. Example, most IT departments do not want their data in the cloud and would like to host their own information. As a result your development team maybe larger. As a result of having a larger team you may have to implement a more formal agile methodology such as Scrum. You will eventually need to bring in sales and account managers to grow and maintain accounts. Pricing for such products tends to be higher as it reflects the overhead involved servicing an enterprise client. Overall, it’s a larger scale operation with more management overhead. It is also very likely that you will need financing to scale and grow the operation.

If the goal is to build a product for the small businesses you may be reaching out via social networks, community sites, etc. to undertake your initial research. You will also probably meet with many people face to face to gauge interest in your idea and ultimately have them evaluate your product demo. The application will most likely have a smaller footprint as small businesses are more likely to use cloud services (aka software as a service). With hosted solutions you are able to choose the technology platform, Ruby on Rails, Django, or any other rapid application development framework. As a result your team size will be smaller. The smaller team size allows for agility. With the smaller team size you most likely will not need additional management overhead. You are aiming to service a larger client base that most likely will not need professional services. Which in turn allows you to charge for the service at a lower price point. There is no need for sales and account managers for products of this scale. If you are developing a product for this segment it can easily be turned into a lifestyle business. 

In speaking with entrepreneurs I find that they dismiss opportunities that are possible when attempting to build products for the small business segment. Their idea of success is go big and get funded, get an office, hire lots of staff because that’s what successful businesses do. It is very possible to build a lifestyle business that earns enough revenue for you and your team to continue working on the product full time. It allows you to grow the business and product organically without significant pressure from a large client or investor with minimal risk. At a fundamental level I think it’s people’s belief on what constitutes a successful product. It all depends on your definition of success. Will you build something that millions of people will use? Probably not. Is it possible to develop a product that 5000 people might find useful and wouldn’t mind paying $20.00 per month for? Possibly. 

Customer Development

We never started Cameesa with customer development in mind but we should have. It would have saved us time from heading in the wrong direction. 

What is customer development? Customer development is a set of principles that allow you take your business ideas and validate them before scaling by reaching out to your potential customers. Serial entrepreneur Steve Blank (who is now a professor at Berkley and Stanford) identified patters that allowed start-ups to succeed in his book the Four Steps to the Epiphany.

I wanted to highlight what I found to be the most helpful take aways from the methodology on a basic level:

1. Get outside of the building.
2. Minimal viable product.
3. The pivot.

Even though I’m oversimplifying I think if these core items are kept top of mind you will have much more success than if they were not taken into consideration at all. Steve’s book does cover a lot of topics that would be applicable to larger venture backed startups but the principles can apply to a small team wanting to get something off the ground. 

1. Get outside of the building.

This is the most important item in customer development as it presents a fundamental shift in the product development process. So what does getting outside of the building mean exactly? It means not staying behind your computer screen developing your product until you’ve at least gathered some insights from potential customers. It is recommended that you have face to face discussions with people. Your goal is two fold. The first is to validate the product idea, the second to is validate the model. An example is as follows:

Me: I am building an augmented reality real estate application for the iphone? You can point your phone at a property and get the listing details and pricing. Cool right? Is this something you’d find useful? You have a lot expertise when it comes to all things real estate so I value your opinion. 

Potential Customer: I’m not sure if the general public would find it useful as they tend to make rental and home buying decisions once every few years. As a real estate broker I’d find it invaluable as I can see my own listings as compared to my competitors in real time when I’m in the area. 

Me: Would you be willing to $10 to download the application?

Potential Customer: $10?! I’d pay $50 for it if it existed.

Me: That’s great! I will touch base when I have the initial prototype ready.

Keep in mind that a good portion of this can be done over social networks and email initially so you can get a large sample of responses as a start. It is highly recommended that you go out and speak to people face to face. This way you can observe their facial expressions, tone in voice and reactions to what you’re saying. This becomes more important if the business model involves direct payment from the consumer. They may wince when you discuss pricing which is great feedback. Feedback that you couldn’t have gotten from an email response. 

2. Minimal viable product. 

Minimal viable product means building only the key features and nothing more. Build only what you need. The question you should ask yourself is: What is the minimum you could produce in order to get something out the door that still satisfies the need? This concept is crucial in the early stages for the following reason. It reduces risk by preventing you from over investing in going in the wrong direction.  It also sets the foundation for iterative/agile development. This will allow you to get feedback and tweak the product as you go along evolving it in a favourable direction. This is at the heart of Eric Ries concept of the lean startup. Pairing customer development with agile software development methodologies. 

3. The pivot.

Once you have developed version 1.0 of your minimal viable product you can go out and solicit more feedback. As you keep iterating you will notice patterns in how people use the product and what they say about the product. This may present a greater opportunity. The product maybe not be used in the way initially intended but with the data you’ve gathered you may be able to create a new product that better reflects the consumer demand. 

I will most likely write a blog post on pivots alone. As with any successful business, it’s not the 1st idea that made them successful but 2nd or 3rd idea. 

Some other key things to note. If you are solving your own problem or have domain knowledge it also improves your chances of success. As does passion and persistence. You should also look at both your product and consumer feedback with a critical eye to preserve consistency. 

Brant Cooper and Patrick Vlaskovits have done an excellent job of creating a cheat sheet to the Four Steps to Epiphany.

Network Effect Utility vs. Standalone Utility

After listening to David Heinemeier Hansson on a number of occasions talking about building a product and charging customers form day one, while not attempting to build a facebook or twitter had me reflect on some of my projects. I agree with him on this point but I think he could elaborate further as to why this is the case.

There are two types of utility to consider when developing a new web product. Utility derived from network effects, IE. The product’s utility increases with the number of individuals that use it, and the other is standalone utility. The utility of the product is solely derived from it’s features irrespective of the number of people who use it. 

Examples of products deriving utility from network effects are obviously all of the social services. Examples include, Facebook, Twitter, LinkedIn, Digg , YouTube, etc. These types of products are extremely hard get off the ground and build a business from. It takes significant time and investment to grow a viable community. These types of services are incredibly hard to sustain early in the absence of venture funding. You rarely make money form day one or need an influx of capital to keep moving the business forward. These types of products require a large user base and it is rare that revenue is derived from the user base itself. It is also questionable whether people would pay to use such services. As a result these business models are primarily advertising based. 

An example of a product standalone utility would be Basecamp. I’m only using it as an example as I made reference to David above and there’s definitely a long list of products that fall into this category. Irrespective of how many individuals use it, it is still useful. Customers in this scenario are wiling to pay up front as it solves a particular problem at an affordable price.  I don’t want to delve deeper into this blog post on how to build services with standalone utility as 37 Signals has shown us the way in Getting Real and Rework. What I will identify is this. If you are able to generate money from day one it at least gives you a fighting chance of moving forward and iterating the product in a favourable direction. One that can potentially lead to more customers and keep the operation running without the need of funding . This tends to be the best test of market viability. 

Cameesa definitely derives most of its utility from the network of individuals that use it. From the artists that submit designs to the supporters that fund projects and ultimately the consumers that purchase the final product. Unfortunately, the retail component of the business is its biggest downfall. If it was a pure play funding platform it could be used by a wider variety of designers at a lower cost. We are currently working on making this transition. In both scenarios network effects are key but in the second scenario it does present us with the opportunity to grow the community. Kickstarter has had tremendous success with this model. 

Lessons In Crowdfunding with Cameesa

It’s been quite a bit of time since we embarked on this crowdfunding experiment (2 years… in internet time) and we’ve learned a lot a long the way. I can write a complete separate post on startup lessons so I’ll restrict this post to crowdfunding lessons learned.

1. Don’t call it crowdfunding

Like the term crowdsourcing, crowdfunding is a coined term that we Internet nerds like to use amongst ourselves because it captures the concept in a single word. The media also likes to use them use because they are buzzwords. However, these terms can be confusing to the greater public and potential new site visitors. Anytime I tried to explain the idea to friends or people inquiring about Cameesa and used the term crowdfunding it would take twice as long to explain. Explaining it as the public giving money directly to artists to produce a product understanding the concept became easier.

2. Collect funds after a goal is reached.

Never get people to commit money up front to a project. It causes a lot of friction. People don’t want to commit their money to a project in limbo. Which in the case of Cameesa is a T-Shirt design reaching the goal of $1000.00 in funds to go to print. However, if the commitment is conditional on the goal being reached people are more willing to take the chance. After we made this change we immediately saw an improvement in the number of people supporting designs.

3. Quality control is paramount

The quality of projects is important especially when you are trying to grow a community of artists. It is extremely difficult for an artist to submit their best work when submissions are open to the public. The best way to enforce quality is to have an invite only system for artists and have funding open to the public.

4. Intellectual property and control belong to artists.

I think there are a lot of options out there when it comes to T-shirt competitions. These include Threadless, Tee Fury, Design By Humans and a never ending list of others. I think the biggest mistake we’ve made with Cameesa was printing and branding the shirts. In the context of “crowdfunding” the artist should be empowered to set the funding limit and ultimately produce the shirts with their own branding. The connection is between the artist and their supporters. In this scenario the artist has more control over the quality of the product. Although we do post mocks for the community to provide feedback on I don’t think we have the right to make judgment calls on how the design gets executed or brand the work. The artist should have full control.

I think one of the key things we’ve learned is that people do like to fund and support the endeavors of artists and that it is a viable commerce model. Co-creation and collaboration with consumers is a more meaningful and social commerce experience that benefits both the supporter and artist.