The Essential Fuel for Startup Success – “Monetizable Pain”

July 27, 2011 By 11 Comments

This is a new blog discussing ways to get to product/market fit faster. The first post was written as a humorous  (but very real) list of events that often happen inside a startup when you are a cofounder. I think I’ve personally endured every one of those steps myself at some point.

The second post made the point that “overnight success” startups really aren’t. All successful startups had to iterate in some way or another to get there.

This post kicks off a series of methods for accelerating startup iterations with the goal of getting you to product/market fit faster. It’s not theory from a whiteboard. It’s based on things that have been tried, tuned, and effective across a number of companies (well, startups) in Silicon Valley in a variety of markets. Each subsequent post will describe specific things a startup can try (with real examples) to help accelerate product/market fit.

The Top 5 Startup Epitaphs

A struggling startup is painful and exhausting. It can drive an entrepreneur bonkers wondering where it went wrong. Cofounders of a failed startup even go through a grieving process. For all you entrepreneurs who have endured the rough ride of a failed startup (myself included), we would like to help accelerate the journey through the five stages of grief and get you back on the Silicon Valley horse (so to speak). To begin the therapy, here is the ultimate top 5 list of reasons most offered for startup failure…..

“We were __________.”

  1. a hammer looking for a nail.”
  2. a feature looking for a product.”
  3. a “nice to have”, not a “must have.”
  4. before our time.”
  5. very cool, but no one would pay.”

Most of us have heard one or more of these. (#4 happens to be the one I’ve used most.)  What’s interesting is if you perform an autopsy on all these modes of failure, a pattern arises. Each of these simple post-mortems is a slightly different expression of the same root cause – a weak customer problem.

Single Biggest Predictor of Success

One of the best ever blog posts on startups is from Marc Andreesen in which he explains why a hot market is more important to startup success than team or product. But even if you agree with his arguments (as I do), there is still a small problem – most entrepreneurs are convinced they are in a hot market. Unfortunately, most of them must be wrong. Otherwise the overall startup success rate would be much higher. So what we need are reliable ways to measure the hotness of a market – as early as possible, ideally before we invest and spend money trying to build a product and a business.  More specifically, we need to measure the hotness of a market in such a way that predicts whether a real startup with limited resources (read: limited product features) can actually build a business.

It turns out that the thing you can measure – and what may well be the single biggest predictor of startup success – is the importance of the problem in the eyes of the customer. If you imagine your startup’s product as a rocket, the importance of it’s corresponding customer problem is the fuel. No matter how smart your rocket design, it’s going to need fuel, and quite a bit of it, if it is ever going to achieve escape velocity. Here is the big point – the “if you only remember one thing from reading this” point:

The more important the problem is to your customer, the easier it will be to build a business despite a less-than-perfect product or a less-than-perfect team.

Customer problems that create sufficient fuel to build a business have a special name – Monetizable Pain. It is the idea that a problem needs to be of a certain critical mass if a company that is small, undercapitalized, with no brand, and no track record is going to get those first customers and scale into a good business. If your offering provides relief for Monetizable Pain, you have a real shot at building a business. If it doesn’t, well, it’s going to be a long tough slog as a startup.

Long Tough Slog

The Land of the Long Tough Slog can be hard to see coming. Last week I was meeting with an entrepreneur who had an idea I personally love and honestly could see myself using. He’s been doing Customer Development and asked, “What do I do when it’s tough getting people to take time to talk about the problem?” And, “What does it mean if I have to prompt them quite a bit about the problem before they realize they have it? What if I’m sure they have the problem, but they need convincing?” Suffice it to say there is a lot packed into those questions, including how the entrepreneur is setting up the conversation, talking about the problem, and to whom.

However, if he indeed is doing everything right (which is the topic for the next bunch of posts), then his challenges are in fact signals that he has not found Monetizable Pain. He is instead seeing signposts marking the path to the Land of the Long Tough Slog. It’s a place where the problem you are solving does exist, and you can indeed build a wonderful solution that your hypothetical target users tell you they love. But the underlying customer problem is weak – there is not enough pain there. Or in other words, it’s actually not a hot market. Which means you work darn hard, get nice props from your target customers along the way, yet never get to Product/Market Fit.

Monetizable Pain

The notion of Monetizable Pain is so essential that one can pretty much sort customer problems into two buckets:

Monetizable Pain vs Merely Interesting“Merely Interesting” problems are smaller. They are attractive but are tough to build a business around. Merely Interesting problems usually come well-disguised with desirable traits that are perfectly designed to woo a budding entrepreneur. A cool solution to a merely interesting problem can generate buzz from the press and bloggers. (Think of Color.) It can get you meetings with prospective customers. It can make your sales people continually talk about how their prospects are really excited about your product. Merely Interesting problems produce recurring sales meetings  with stories of the same “interesting” target customers who are always “interested” in your “interesting” product for their “interesting” problem.  In fact, those wannabe target customers stay “interested” the entire time they are in the sales funnel – not only this month, but next month, and the month after that too. The problem is not that they aren’t interested – there is lots of interest – the problem is users aren’t growing, and/or nobody’s buying.

Or – some do buy. But at a far smaller deal size or price than you modeled (remember those numbers in your “already conservative” spreadsheet? ) Or users do grow. But slowly. Merely interesting problems put you on a path to startup purgatory that is paved with people who love you but never write a check. Merely interesting problems are great at generating lots of buzz and interest in the free version, but never really deliver conversion to the paid version.

Monetizable Pain as an Accelerator

Monetizable Pain is the exact opposite. A startup that begins with monetizable pain is never characterized as a hammer looking for a nail. It will not be trying to reposition itself as a “must-have” 6 months after launch. It will never sit in the deadpool with the epitaph “we were before our time.” It will not be producing white papers to “educate” target customers on how they are really losing money but they just don’t know it. And it will not need an ROI calculator on its web site.

There are five game changing facets to Monetizable Pain:

  1. You can test a problem to see if it is a Monetizable Pain problem.
  2. The test is fast – days or weeks, not months or years.
  3. You do not need to have a product to perform a test.
  4. You do not need a lot of money to perform a test.
  5. Taken together this means you can iterate quickly on the results and get closer with each test.

Monetizable Pain is such a great predictor of startup success, that it makes sense to test for it and find it before we actually proceed with building anything. It’s the first bridge that must be crossed before taking off on our journey to product market fit and eventually startup success. Once we have validated we have Monetizable Pain, we’ll be ready for the second bridge – how to quickly come up with the winning product spec. (Which is a whole other process – more on that later – or sooner depending on how fast I write…)

If we can test for monetizable pain quickly, and iteratively, without spending a lot of money, we are able to begin our fast, accelerated journey through the loops. How do we do that? I’ll start offering those details in the next post….

Filed Under: Stage One: Pre-revenue

The Real Secret to Startup Success

June 8, 2011 By 4 Comments

Note: This post is a “more serious” continuation from my parody about the startup journey,  140 Simple Steps to Startup Success

It was the height of the dotcom boom, and I found myself sitting down for an informal meeting with the one and only Clayton Christensen from Harvard Business School. We had hired one of his former students into NetMind, a startup I co-founded. The distinguished Dr. Christensen was in Silicon Valley after publishing “The Innovators Dilemma” and wanted to hear more about our startup journey.

In that meeting Professor Christensen shared a recent insight about startups  – a secret to startup success – based on the companies he had seen. As you might imagine, he had my attention. The secrets to startup success are vigorously debated in Silicon Valley. In fact, just sitting down in any Starbucks around here will likely place you in the middle of what often sounds like a sports radio call-in show about startups. You can’t help but overhear “Joe from Palo Alto” ranting like an armchair quarterback about why his startup gig is struggling.

The more informed debates about startup success tend to focus on three factors – product vs market vs team. And since I was pretty familiar with these discussions, I was thinking that just this once I might already know what Dr. Christensen was going to say.  Instead, as usual, he said something far more interesting. His insight was that the startups that succeed are simply those that have enough money leftover to try their second idea…….

A Different Growth Model

This was a bit jarring for a first time entrepreneur who was still paddling hard in the murky soup of a first idea. We had taken a sizable venture round, on the premise that our idea, which had a lot of traction with non-paying customers, would soon explode into world domination. In fact, we had even come up with a clever and unique graph to show our trajectory. It looked like this:

hockey stick revenue projectionUnfortunately, as you perhaps might recall about the dotcom bubble, there were – in fact – just a few other startups that also predicted this same trajectory. Thankfully, we’re all much smarter now and we’ll never do that again……right?…….

The key point Clayton Christensen was making is that successful real startups don’t actually follow that trajectory. He was saying a real startup trajectory might look something more like this:

more likely startup trajectory

Real startups that succeed go through a loop first. If you have ever ridden a roller coaster, you know how a loop feels. It spins you around and induces a temporary loss of direction. Which means for startups, this should be a normal and expected feeling. The big trick is to survive the spin cycle.

The Truth About Successful Startups

The idea that a successful startup most often fails before it succeeds is becoming quite popular. But the concept has been alive in the DNA of Silicon Valley for quite awhile.  Silicon Valley is really one of the only environments in the world where failure is actually treated like a good thing – but only if you learn from it and keep going.

Because the truth is that Professor Christensen’s initial observation was only half-right. The honest stories of startup success actually get more interesting. Most entrepreneurs will tell you that idea number two also failed. If you talk to the Twitter co-founders, they will tell you it was a long road to their “overnight” success. For most successful startups, the real curve, actually looks a lot more like this:

3 loopsAs if one loop wasn’t enough…… Successful entrepreneurship requires persistence and maybe a big box of Dramamine.

The Real Startup Success Secret

What is the Real Secret of Startup Success? Clayton Christensen was really close. It starts with having the persistence and resources to continue iterating. There is, however, an important detail – you can’t iterate wildly without context or direction. Buckshot doesn’t actually work for startups. But iteration does. Did you notice in the above graph how each successive loop is a little bit higher than the last? That slightly upward ramp is really important. It means you are learning.

The real secret is to build on what you learned in the last failure.

Which means if you want to succeed, you have to start your journey with a clear understanding of the critical assumptions in your business, and design in the ability to clearly know which of those assumptions are actually wrong. This is very different from throwing any new idea against the wall and seeing what sticks.  An iteration based on this knowledge is called “a pivot” by the Lean Startup community. I got to have dinner with Dave Binetti ,Founder/CEO of Votizen one night and he explains pivots way better than I do.

How to Use the Real Secret

But wait a second. If we know the Real Secret to Startup Success, than why is the failure rate of startups so high? Ah, if only it were so simple. I’ll get into more details (with some great ways to avoid common problems) in ensuing posts. However, our loopy trajectory model exposes two huge reasons:

1)      The amount of persistence required to get through the loops is pretty high. It takes a special kind of person with a special level of passion. Even then, each loop is full of drama and emotional issues that can derail a team despite their commitment (which is a topic for other posts).

2)      Having enough resources to get through the loops is hard. “Resources” usually means money. It also means time. The traditional method for getting through each loop is to build something that might work, get it out to customers and see what happens. That always takes money (unless you are still living at home and can do it all yourself), and time (unless you happen to be traveling at the speed of light.)

So the model tells us your risky startup is actually a sure thing if you can satisfy three simple conditions:

a)    You are unusually persistent by nature, and

b)    Your parents will let you have your old bedroom back (for free), and

c)    You can make your parents house travel at the speed of light (while you’re inside working away.)

We can all see the obvious problem here ……no pizza delivery car can travel at the speed of light, and let’s face it, you can’t do a startup without pizza. So if you can’t do those three things, fear not, there is a support group for you called “the rest of us.”

How Mere Mortals Use the Real Secret

But what if, (just run with me for a second here)……what if mere mortals working in earth time could accelerate through those loops with minimal time and money? Imagine those dazzling graphs shown above with the X axis representing “Time and Money” (which would be a good thing to imagine because that’s what the axis is.) What if you could somehow compress the graph and do this…..compressed loopsIn this scenario, we still accept the journey through the loops as an immutable law of physics for successful startups. Except this time, we magically sprint through those loops, and do it in a way that still picks up the same wisdom and insights that might come from spending more time and more money. To the outside world, it looks like a lucky overnight success, but those of us who were actually on the ride would know we indeed paid our dues and we look smart for a reason. Our success is not about luck.

How do we do that? To travel fast, you have to travel lightly. Everyone who has seen or ridden a motorcycle knows it is far more quick and agile than a car. Yet a motorcycle has a much smaller engine than a car. It gets its speed from traveling lightly. Startups often make the mistake of trying to get the through the loops in a car, or a jeep, or an SUV, or if you were WebVan, a big-ass semi.

What we need are efficient, smart ways to accelerate (that means getting the job done without spending a lot of money or time). We have to accelerate like a rocket or an electron trying to achieve escape velocity. The Lean Startup movement and incubators like Y Combinator preach speed – they are all about being fast through the loops; however, with each post, I plan to walk through specific new stuff you can do that no one else is talking about and will help you accelerate and iterate quickly. (Thus the name…….Smart Fast Startup……)

The first huge accelerator comes from a new concept called Monetizable Pain. It’s something I wish I knew back in those dotcom days during my first startup. Check it out in the next post coming up.

Filed Under: Stage 2: Repeatable Business Model, Stage One: Pre-revenue