Manifest of development for the client: the causes of the revolution (part one)

Steve Blank is a guru in the field of startups, the founder of the concept of customer-oriented development, the author of the cult books - The Four Steps to the Epiphany and The Startup Owner's Manual -, the founder of eight startups. This article reveals the reasons for abandoning the traditional approaches to building a startup.

After 20 years of work in startups, I decided to stop and look at the Product Development Model, which I followed: to understand why it was unsuccessful in terms of our work “outside the office” - sales, marketing and business development.

Every startup has some methodology for developing a product, launching it, and managing its life cycle. Ideally, these processes contain detailed plans, check-points and milestones for each stage of product launch on the market: determining the size of the market, estimating sales, developing a marketing plan, prioritizing the features of the product. But in the end, despite all these tools, 9 out of 10 products fail.

So what's the problem with the product development model? The first hint is in the name of the model. This is a product development model! Not a marketing model, not a sellers hiring model, not a user engaging model, or even a financial model (which is a sufficiently weak model for product development itself). Startups traditionally used this model (product development) to control and set the pace not only for technical processes, but also for non-technical ones.
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In this article I will describe the flaws of such a model. In the following articles, I will describe in more detail how this model distorts sales, marketing and business development in startups. And as reflections on the solution of these flaws gave me a new model — the Customer Development Model — which offers a new way to work “out of the office.” I am also going to write about a similar model of Eric Rees (within the framework of the “ Lean Startup ” concept) for developing the product “inside the office” and how it neatly integrates the development for the client and the “flexible development methodology”.

1. Where are the customers?

To begin with: a product development model completely ignores the fundamental truth about startups and new products. The main risk in a startup and, therefore, the main cause of failure is not technological risk, but the risk associated with customers and the market . Startups fail not because they lack a product. And due to the fact that they lack customers and a profitable business model . This alone is a good hint about what goes wrong when using the product development model as the only guide in everything that a startup needs to do. Look at this model and you will be surprised where are the customers?

The reality for most startups today is that the product development model fully focuses its attention on the development that runs “inside the office”. Despite the fact that the initial data from consumers may be a check-point or a reference point in the development, they are not taken into account.

2. Focus on first delivery date

Using a product development model forces sales and marketing to focus on the end point of the process — on the date of first delivery . Most of these executives hired by the startup look first at this date, then at the calendar on the wall, and work “from the opposite”, calculating how to do their work while the fireworks start on the day the product is launched.

The flaw in this approach is that the “first delivery to the customer” is just a date when the techies think they will finish developing version 1.0 of the product. The first delivery date does not mean that the company understands its customers, how to position themselves in the market, sell the product and how to build a profitable business. Read the offer again. It has a lot of meaning.

Even worse: investors are also repelling in their financial milestones from this date.

The product development model is so focused on creating and delivering the product that it completely ignores the process of checking your basic assumptions about the business model (customers, channels, pricing) before delivery and not checking these assumptions beforehand - a fundamental and, in many cases, fatal error, done by most startups.

Why? Because before the first delivery to a client, a startup cannot find that their hypotheses were simply incorrect (for example, customers do not buy; distribution costs are too high, etc.). As a result, the young company is burdened with an already expensive and large sales department, confused and trying to realize a losing sales strategy, and a marketing department desperately trying to create demand without a clear understanding of customer needs.

And while marketers with salespeople turn around in search of a sustainable market, the company burns its most valuable asset - money.

3. Focus on performance instead of exploring and detecting

The product development model implies that you know the needs of consumers, you know what features the product should have, and the business model is also known. If we assume that this is an undoubted fact, then it is quite logical that a startup hires a team of salespeople and marketers for the simple execution of a business plan. You interview future top managers to determine if they have relevant experience and the right business cards in their collection, and hope that they can play according to the scenario that worked in their previous company.

Usually, this is a bad idea. No one will ask: “Why do we perform as if we know what we are doing? Where exactly did this assumption come from in our business plan? ”Has the hypothesis about the sales model been subjected to real“ out-of-office ”checks? Or is it a set of plates, combined late at night over a beer, to convince the investor that this is a great deal?

None of the recently hired top managers will tell the Founder, “My previous experience may not be relevant for this startup.” Upscale salespeople and marketers do their job well. And this is the reason why you hired them. But previous experience may not be relevant for your new startup. A new company needs to test a series of hypotheses before it can find a replicable and scalable sales model. Start-ups that create a new market or re-segment an existing one, it’s important not only simple execution , but you also need to learn and discover new things, and this activity is crucial for success or failure.

4. Focus on performance instead of flexibility

The product development chart has a linear flow from left to right. Each step occurs in a logical sequence, which can be represented by a pert method with maystones and resources intended to complete each step.

Anyone who has ever introduced a new product to the market for potential customers can confirm to you that in the real world this doesn't work a damn thing. Good result in working with clients: two steps forward, one backward. In fact, the best way to describe what is happening outside the office is recursive circles. Recursion to illustrate the iterative nature in which the study and discovery takes place. Information and customer and market data are collected gradually: step by step. But sometimes these steps let you go astray or even lead to a dead end. You find yourself in a situation where you call the wrong consumers, you do not understand what people are willing to pay for, what features are really important. Sometimes potential customers can offer a new way to use the product, a new positioning, or even an idea is better.

The ability to learn from mistakes, identify new opportunities and quickly change direction, what distinguishes a successful startup from those that have already disappeared and whose names are forgotten.

5. Outsourcing the responsibilities of the Foundation

The product development model alienates the founder from a deep understanding of its customers and the market. The obligation to validate the hypothesis, which originally belonged to Fowder , is delegated to employees - a team of sales people and marketers.

This means that the founder isolates himself from the immediate voice of the consumer, which can be pleasant, unpleasant, or vile. Even worse, if the founder really does not really want to understand whether consumers will buy and, if so, what features, before the first delivery.

When the resourceful and flexible founder leaves the office and hears for the nth time that the product is unsaleable , he realizes this, rebuilds and changes direction . It is very important to organize the process initially so that the founder has constant communication with consumers .

6. Focus on the finished product instead of the minimum set of features

Enthusiasm entrepreneur paired with a product development chart makes you believe that all you need to do is create a product (with all the grandeur of features) and the consumer will come to you. Cascade development model reinforces this nonsense. The reality is somewhat different. Unless you are in an existing market (creating an improved version of an existing product that is already being bought by consumers), then you will find that your hypotheses about the features that consumers want have nothing to do with what they really want. Most of the written code will be in the garbage pail.

7. Investors focus on the wrong model.

Ask a venture investor why he uses a product development model to manage a startup, and you will receive a response from the series: “This is the way my company has always used. Why change something that has worked beautifully over the past 30 years? Or “Look at our profits! In our case, everything works, ”or sometimes even a more sincere answer,“ Managing partners believe that this is the only possible option. ”

Some companies rightly point out that they will be satisfied if 8 out of 10 companies do not succeed, but the remaining two will return the invested funds at a 20-fold amount. This is a more desirable outcome than having 10 out of 10 successful companies, but with a double payback. Therefore, they really want startups to go all bad.

It is a mistake to assume that the product development model is the most effective model for new enterprises: neither now, nor last year, nor in the past decade, or when the first startup met with its first investor.

Venture funds succeeded, not because they used the product development model, but in spite of it. The truth is that the most successful startups rejected this model as soon as they came across real consumers.

Today, startups that use a product development model are learning and discovering new things at the expense of investor money. When money runs out, they close the business - or adapt a more efficient model.

Friends, I urge everyone who is not indifferent to startups and knows English, to join the translation of interesting English-language articles! I have a lot of them) At the exit: pumping English, expanding horizons and respect from those who can not afford to read them in the original. Write in a personal!

Bonus: The Startup Owner's Manual by Steve Blank & Bob Dorf