Like " Need " Buy

Brad Bentz, Partner, ATX Venture Partners

"We've heard only good things."

"People seem to love our product."

So why aren't they buying it?

Over the past five years, I’ve spoken to many B2B startups who've found themselves in a ditch after what appeared to be a successful launch. Their initial product release garnered a fair number of users, plenty of positive feedback, and sometimes even a few paid pilots. Confidence was high that these early adopters were the tip of the iceberg and that widespread adoption would soon follow. Yet, all too frequently, this turns out to be a mirage. I recall one founder whose users on 90-day pilots still hadn’t converted to paid contracts after nine months. He was afraid they would abandon the product if forced to purchase a subscription.

What’s going on here? As Geoffrey Moore pointed out in Crossing the Chasm, innovators and early adopters are qualitatively different than the broader market and must be appealed to in different ways. 

However, what I frequently observe is even more fundamental: Too many startups aren’t addressing a problem that really needs to be solved for the vast majority of users. They bring a “nice to have” rather than a “must have” product to a market already crowded with solutions that function well enough for most business customers.

The clearest indicator that your product is perceived as “nice to have” is low trial conversion. There may be an initial burst of sign-ups after your latest trade show appearance or email campaign, but engagement quickly drops off. A large number of users only log in once or twice and spend little time in the application. They balk at taking the simple steps needed to unlock value from the product. Few users show an inclination to move beyond trial status. To be sure, you should use analytics and A/B testing to rule out potential UX problems as a root cause, but don’t be afraid to question if the underlying need is urgent enough to spur adoption.

Sadly, I’ve discovered that many founders prefer not to revisit their initial assumptions about users and instead forge ahead with their go-to-market strategies despite weak evidence of demand. Customer validation can be hard work. This vital step is often abridged so the team can get on with the more exciting tasks of writing code and planning a splashy launch, but I can tell you from experience that relying on third-party analyst reports or driving traffic to a hastily constructed landing page is no substitute for a deep understanding of your customers’ needs.

The entrepreneurs who most easily fall victim to this trap are usually one of two kinds. The first consists of founders trying to solve a frustration they personally experienced in their own lives (often in an industry they don’t know well). They project their feelings onto others and assume if it’s a big deal for them, there must be a sizable market of like-minded souls who would gladly pay for a solution. A second group consists of technologists building a software product around a cool new technology. 

Depending on what’s being hyped the most at any given moment, this could involve drones, AI, AR/VR, blockchain, etc. The sizzle factor definitely gets people’s attention, but novelty alone won’t win deals if there isn’t a solid business case to justify paying a subscription. These founders mistake tire kickers for real customers and realize all too late that their pipeline is largely an illusion.

Serial founder and academic Steve Blank elegantly sidesteps these problems with an approach to entrepreneurship he calls the Customer Development Model (“CDM”), first outlined in The Four Steps to the Epiphany. In a nutshell, the CDM is a framework for identifying and testing customer needs before committing to large, irretrievable investments in product development and go-to-market activities. A key tenet of Customer Development is that the team can only learn about customers by “getting out of the building” and interacting with them directly. Several years after Blank first described the CDM, Eric Ries distilled Blank’s ideas and combined them with the methods of agile product development in the very accessible Lean Startup. Both authors have been widely influential in the startup community.

For those of us who lived through the dot-com bubble, the wisdom articulated by Blank and Ries has been forever seared into our consciousness, but I feel the market has come full circle once again, with a lot fewer entrepreneurs paying heed to their advice in recent years. Against the backdrop of a decade-long economic expansion and investors pumping billions of dollars into early-stage companies, it’s understandable that some founders have developed blind confidence in their product’s ability to find a market. A reckoning, however, may be close at hand. Startups that are going to survive (much less thrive) in this more austere environment will be the ones who prioritize customer discovery and validation before attempting to scale their businesses.