Killing Your Startup By Listening to Customers
The art of entrepreneurship and the science of Customer Development is not just getting out of the building and listening to prospective customers. It’s understanding who to listen to and why.
Five Cups of Coffee
I got a call from Satish, one of my ex-students, last week. He got my attention when he said, “Following your customer development stuff is making my company fail.” The rest of the conversation sounded too confusing for me to figure out over the phone, so I invited him out to the ranch to chat.
When he arrived, Satish sounded like he had five cups of coffee. Normally when I have students over, we’d sit in the house and we’d look at the fields trying to catch a glimpse of a bobcat hunting. But in this case, I suggested we take a hike out to Potato Patch pond.
Potato Patch Pond
We took the trail behind the house down the hill, through the forest, and emerged into the bright sun in the lower valley. (Like many parts of the ranch this valley has its own micro-climate and today was one of those days when it was ten degrees warmer than up at the house.)
As we walked up the valley Satish kept up a running dialog catching me up on six years of family, classmates, and how he started his consumer Web company. It had recently rained and about every 50 feet we’d see another 3-inch salamander ambling across the trail. When the valley dead-ended in the canyon, we climbed 30 feet up a set of stairs and emerged looking at the water. A “hanging pond” is always a surprise to visitors. All of a sudden Satish’s stream of words slowed to a trickle and just stopped. He stood at the end of the small dock for a while taking it all in. I dragged him away and we followed the trail through the woods, around the pond, through the shadows of the trees.
As we circled the pond I tried to both keep my eyes on the dirt trail while glancing sideways for pond turtles and red-legged frogs. When I’m out here alone it’s quiet enough to hear the wind through the trees, and after awhile the sound of your own heartbeat. We sat on the bench staring across the water, with the only noise coming from ducks tracing patterns on the flat water. Sitting there Satish described his experience.
We Did Everything Customers Asked For
“We did every thing you said, we got out of the building and talked to potential customers. We surveyed a ton of them online, ran A/B tests, brought a segment of those who used the product in-house for face-to-face meetings. ” Yep, sounds good.
“Next, we built a minimum viable product.” Ok, still sounds good.
“And then we built everything our prospective customers asked for.” That took me aback. Everything? I asked? “Yes, we added all their feature requests and we priced the product just like they requested. We had a ton of people come to our website and a healthy number actually activated.” That’s great I said, “but what’s your pricing model?’ ”Freemium,” came the reply.
Oh, oh. I bet I knew the answer to the next question, but I asked it anyway. “So, what’s the problem?”
“Well everyone uses the product for awhile, but no one is upgrading to our paid product. We spent all this time building what customers asked for. And now most of the early users have stopped coming back.”
I looked at hard at Satish trying to remember where he had sat in my class. Then I asked, “Satish, what’s your business model?
What’s your business model?
“Business model? I guess I was just trying to get as many people to my site as I could and make them happy. Then I thought I could charge them for something later and sell advertising based on the users I had.”
I pushed a bit harder.
“Your strategy counted on a freemium-to-paid upgrade path. What experiments did you run that convinced you that … Next Page »