The SearchLite has now completed over 80 Market Discovery Challenges over the past 3 years. Our startup and new venture clients have included a wide variety of organizations, entrepreneurs and topics. What they all have in common is a need to assess the commercial viability of a new technology or solution. Furthermore, they need to assess it quickly before they run out of time and resources. The objective is to quickly identify if there is a need to iterate deeper or execute a bigger pivot regarding either the target customer segment or the solution. Of course there is always the possibility that there is no product-market fit and that “the baby is ugly”. With respect to their technology or solution, our clients hire The SearchLite to find out:
Why do they care?
How much do they care?
Market Risk – The elephant in the room
Studies have all shown that market risk is by far the biggest risk facing any new venture, whether it is being driven by an entrepreneurial startup team or from within an existing company. Market risk is believed to be the cause of over 80% of new startup failures. Technical risk, team risk and financial risk make up the remaining smaller share of risk.
To address market risk, The SearchLite’s Market Discovery Process integrates popular tools from key thought leaders in the lean startup movement. These tools include the Customer Development Process from Steve Blank as well as Business Model Generation and Value Proposition Design from Alex Osterwalder. Both are good tools individually and are even better at addressing market risk when used together.
The Business Model/Value Proposition Canvas identifies the nine most important building blocks of any new business venture. The Customer Development Process provides the methodology by which to create and validate key hypothesis across the nine building blocks. In essence, the two tools provide a framework for applying the scientific method to validating key hypothesis, just as any researcher would do on their bench to prove out their new science. The Oxford Dictionaries define the scientific method as “a method or procedure that has characterized natural science since the 17th century, consisting in systematic observation, measurement, and experiment, and the formulation, testing, and modification of hypotheses”
Addressing Fear, Uncertainty and Doubt (FUD)
One of the most common issues we have seen over three years when working with inventors, especially university researchers, is they are not able to make the mental connection and apply the same scientific approach to market risk as they would do to address technical or scientific risk, even when confronted with the evidence that market risk is the bigger risk to address. A common challenge is that they have not developed their key “product-market fit” hypothesis. At best, they often only have a handful of questions in mind. Because the researcher has not been able to properly frame hypothesis in the form of decisions, there is a general cloud of what I would call “FUD” or “fear, uncertainty and doubt” hanging over the researcher/inventor and their commercialization coaches (e.g., tech transfer mentors). It is important to recognize and acknowledge the FUD, but then quickly adopt a strategy to address it.
One of The SearchLite’s early challenges on most projects is to help our startup client re-frame their ad-hoc questions in the form of structured decisions, each with the appropriate criteria and alternatives. We find that this approach is less intimidating and more effective than forcing the client to create narrow hypothesis. It is often too difficult to express narrow hypothesis at the beginning of Customer Discovery if the science is early stage and/or has broad market application.
Taking a lesson from Systems Thinking
A basic tenant of systems thinking is to identify and understand the relationship between multiple decisions as well as the alternatives and criteria associated with each decision. Failure modes in business, or even life in general, are thought to all fall within one of three buckets. Startups and new ventures are not immune to these failure modes and, in fact, are likely more susceptible to them.
Decisions poorly made
Decisions poorly implemented
The Biggest Decision – Product-Market Fit
Steve Blank’s Customer Development Process provides a good example of systems thinking. The SearchLite often finds that startups and new ventures often believe that they are one to two stages ahead of where they really are with respect to the Customer Development Process.
They have begun building their company with creating customers.
They have begun customer creation without validating who their customer is.
They have begun validating their customer without discovering alternative customer segments to consider.
Getting these decisions properly framed and sequenced is a critical success factor to addressing market risk. The struggle of knowing where you are in the Customer Development Process as a startup or new venture comes from not understanding how to (1) identify and frame the decisions; (2) identify the associated alternatives and criteria to properly make each decision and (3) properly sequence the decisions to address. Thus, relative to systems thinking, many startups are often making all three errors simultaneously. No wonder that there 80% of startup and new venture failures result from addressing market risk … “it is not easy”!
How to know when to move forward?
In the case of the Customer Development Process, startups may not understand the thresholds by which they pass from one stage to the next. Thus, they mistakenly believe that they are further along that they really are.
Problem-Solution Fit – You move from Customer Discovery to Customer Validation when you have evidence that customers care about certain jobs, pains, & gains AND you have designed a value proposition that addresses those jobs, pains, & gains.
Product-Market Fit – You move from Customer Validation to Customer Creation when have evidence that your products and services, pain relievers, and gain creators are actually creating customer value and getting traction in the market.
Business Model Fit – You move from Customer Creation to Company Building when have evidence that your value proposition can be embedded in a profitable and scalable business model.
Startup Example – Med Device Solution
Now we will use a startup example to demonstrate the integration of the Customer Development Process, Business Model/Value Proposition Canvas within a Systems Thinking Framework.
Decision Framework (Business Model Canvas):
Product-Market Fit – For whom are we creating value? Who are our most important customers? What value do we deliver to the customer? Which one of our customer’s problems are we helping to solve? What bundles of products & services are we offering to each Customer Segment?
Channels – Through which Channels do our Customer Segments, want to be reached? How are we reaching them now? How are our Channels integrated? Which ones work best? Which ones are most cost-efficient? How are we integrating them with customer routines?
Customer Relationships – What type of relationship does each of our Customer Segments expect us to establish and maintain with them? Which ones have we established? How costly are they? How are they integrated with the rest of our business model?
Revenue Streams – For what value are our customers really willing to pay? For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues?
Key Activities – What Key Activities do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue Streams?
Key Resources – What Key Resources do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue Streams?
Key Partnerships – Who are our Key Partners? Who are our key suppliers? Which Key Resources are we acquiring from partners? Which Key Activities do partners perform?
Cost Structure – What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive?
We have now demonstrated an approach using existing “off the shelf” tools that, when applied properly, will help prevent the most common failure modes when addressing market risk for startups and new ventures. The SearchLite uses systems engineering software to capture the proper decisions, their alternatives and criteria. Capturing generalized patterns from past projects allows The SearchLite to identify value proposition and business model starting points quickly, thereby accelerating our Market Discovery Challenges for each new client.
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FOOTNOTE: Osterwalder, Alexander; Pigneur, Yves; Bernarda, Gregory; Smith, Alan (2015-01-23). Value Proposition Design: How to Create Products and Services Customers Want (Strategyzer) (Kindle Location 756). Wiley. Kindle Edition.
Industrial Internet, Industrial Internet of Things, Industry 4.0, Smart Factories, Machine-to-Machine … whatever you call it, it is a BIG Movement across the globe. How big is the economic power of the Industrial Internet? Consider one analysis that places a conservative estimate of worldwide spending at $500 billion by 2020, which then points to more optimistic forecasts ranging as high as $15 trillion of global GDP by 2030. Industry 4.0 or the fourth industrial revolution, is a collective term embracing a number of contemporary automation, data exchange and manufacturing technologies. It had been defined as ‘a collective term for technologies and concepts of value chain organization’ which draws together Cyber-Physical Systems, the Internet of Things and the Internet of Services.
The SearchLite had the privilege of being invited to McMaster University to conduct an Innovators-in-Residence Workshop on March 3rd, 2016. The invitation was extended by the Graduate Student Life Team, part of the School of Graduate Studies. This event was made possible by a connection between Scott Phillips from The SearchLite and Catherine Maybrey from McMaster University back in 2014 when Catherine hosted a “CV to Resume Webinar” on behalf of The SearchLite.
Catherine began her career with dreams of the tenure track, and along the way discovered something much better – the ability to take the best of what she loves about academia and to apply it in practice helping others. Her approach to career development is grounded in labour market research, hiring practices, and innovative use of technology to make service available to all graduate students on their timetable. She previously served as the Alumni Career Coach, where she advanced services for graduate students including workshops and videos on Transforming Your CV to a Resume, The Academic Job Search, The Non-Academic Job Search, Transferable Skills, and Graduate Student Boot Camp.
The Innovators-in Residence (IIR) program is a community-based learning platform. The IIR program provides a unique opportunity for Ph.D. graduate students and postdoctoral fellows from all academic disciplines to gain experience in innovation commercialization, acquire insights into market risk assessment and build relationships with leaders in industry while trying to solve real-world problems.
The McMaster University Graduate Students who participated in the workshop learned about the principles of Product-Market Fit and Value Proposition Design through live engagement in case studies which represent real Market Discovery Challenges recently completed by The SearchLite. Value Proposition Design is one of the most critical skill sets needed to be a successful inventor or entrepreneur and a key element of the Lean Startup Process and Business Model Generation. Understanding Value Proposition Design will also be a valuable skill for academics in transition to industry with interest in various aspects of Corporate R&D, Engineering, Product Management or Marketing.
Students broke down into teams and were assigned a case study. Their assignment was to identify the best -Product-Market Fit given the Value Proposition for a particular invention. Inventions included (1) Portable Ammonemia Detector (Stanford University) – A low cost, portable, simple-to-use device designed to rapidly detect elevated ammonia in a drop of blood; (2) Rapid Decoupling & Isolation (Oakland University) – Concept with ability to sense a sudden event and rapidly decouple load-bearing, structural joints in order to isolate occupants from the shock of the event; (3) Mobile Power Generation (Diversified Solar) – Hybrid solar system for mobile stand alone and grid-tied solar-based power generation and other inventions.
The teams all did an amazing job. With no background on the principles of lean startup and only one hour to study their inventions, they all presented to a mock group of venture capitalists at the conclusion. It was amazing how they were all able leverage the individual strengths, skills and experiences of their individual team members. After the presentations, Scott had a chance to have lunch and visit with the students to learn more about their future plans and answer questions about The SearchLite and the Innovators-in-Residence Program.
Leaders from the bio-industry, academia, and policy realms recently met in Lansing to discuss how to best unleash Michigan’s biosciences R&D and manufacturing potential to stimulate economic growth. The Michigan Bio-Industry Growth Summit was hosted by MichBio.
I was quite impressed with the quality of the event. Stephen Rapundalo and his co-organizers had clearly done a magnificent job in terms of preparation. The topics were very relevant and the speakers were all very accomplished and thought leaders on their subjects. Networking before and after the event was particularly valuable. I am already looking forward to attending next year.
The SearchLite recently hosted a NIH BEST career panel discussion at Michigan State University. The panel discussion about career transition was held at the offices of MSU Technologies on Thursday, December 17th. The panel featured three speakers and focused on career opportunities in Life Sciences for PhD Candidates and Post Docs. Students from theMSU BEST Program and Wayne State University BEST Program participated in the career panel. BEST stands for Broadening Experiences in Scientific Training. The National Institute of Health (NIH) has selected and funded 17 research sites in the US to participate in the BEST Program.
I recently had the opportunity to sit in on a brainstorming session at Automation Alley in Troy, MI that was focused on Blackstone Launchpad programs at Wayne State University and Walsh College. The session was facilitated by Dom Holmes from Automation Alley and Pavan Muzumdar from PCS Insight. The brainstorming event included student let startups as well as commercialization coaches and other advisors. Carol Glynn is the Director of the Walsh College LaunchPad Program and Jason Beale is the Project Coordinator for the Wayne State University Blackstone LaunchPad Program. It was impressive to watch each of them coach the student and faculty led startups.
I also continue to be impressed by Automation Alley and the breadth of their reach within the SouthEast Michigan Business Community and also their recent focus on entrepreneurial startups and second stage entrepreneurs with their Seven C’s Program. Tom Kelly, Dom Holmes, Ted Williams and Pavan Muzumdar have really put a lot of thought into the needs of startups and second stage companies. They recently engaged The SearchLite to conduct a Customer Validation Assessment to pinpoint the nature of second stage entrepreneurial needs and how Automation Alley can be accessible and effective in addressing those needs.
Automation Alley has tremendous resources and facilities that have been developed over many years and I am impressed at their willingness to team with other entrepreneurial organizations such as the LaunchPad Programs at Wayne State University and Walsh College, the Michigan Small Business Development Center (SBDC) and many other organizations. I strongly encourage any startup or second stage entrepreneur who is looking for a place to start with when looking for assistance, to start with Automation Alley.
Over the last year, The SearchLite has conducted over 40 Market Discovery Challenges for university technology transfer offices (TTOs), Angel Investors and Business Incubators on behalf of inventors and startups. Market Discovery Challenges are designed to help identify “Who Cares and Why” about a new technology or solution. The idea is to use Customer Discovery Interviews and other tools to validate or invalidate key hypothesis about Value Propositions, Customer Segments, Product-Market Fit and other key aspects of the business model that a new venture is pursuing.
The primary framework, which serves as the foundation for The SearchLite’s Market Discovery Challenge, is “Lean Startup” and, more specifically, the Customer Development Process. The four primary disciples of Lean Startup over recent history are Geoffrey Moore, Steve Blank, Eric Ries and Alex Osterwalder. While there are many other thought leaders on the Lean Startup Subject, these four have laid the primary foundation with Crossing the Chasm (Geoffrey Moore), Customer Development (Steve Blank), Agile Development (Eric Ries) and Business Model Generation/Value Proposition Design (Alex Osterwalder). The HBR article from May, 2013 by Steve Blank –“Why the Lean Start-Up Changes Everything”, is a good place to start for those unfamiliar with these concepts.
For The SearchLite, one of biggest challenges we encounter on almost every Market Discovery Challenge is understanding “Where the Start-up Is” as a starting point. Inevitably, each inventor or entrepreneur tends to believe his or her technology, solution or startup is further along the Customer Development Process than it really is. Two of the key outcomes of the early phases of Customer Development are “Problem-Solution Fit” (Customer Discovery) and Product-Market Fit (Customer Validation). Almost without exception, Start-Ups are trying to execute Customer Creation or Company Building without ever having achieved Product-Market Fit. They may be trying to do Company Building when they should be focused on Customer Creation. Start-Ups focused on Customer Creation often should step back one or two steps back to Customer Discover or Customer Validation.
In one example, The SearchLite recently worked with a university spinout that had developed wireless monitoring and control technology which was early stage in development and broad in terms of potential market application. This situation was most suited for Customer Discovery, but the Start-Up Team felt that they already had identified their best-fit customer and wanted to focus on Customer Validation. As a result, the Market Discovery Challenge was focused narrowly on validating interest in the technology only from Plant Managers at OEM Stamping Plants in the Automotive Industry. The results of the Customer Discovery Interviews indicated that the industry, application and customer type were all overly constrained and that there was little interest from this customer in this technology. This was a classic case of confirmation bias on the part of the Start-Up Team.
Recently, The SearchLite has been working with some post-revenue, Second-Stage Companies in addition to Start-Ups. In many cases, the introduction has come from digital marketing agencies who have been brought in to help the Second-Stage Company to grow sales via marketing automation platforms. In the context of Steve Blank’s Customer Development Process, Marketing Automation is synonymous with Customer Creation. Marketing Automation is a fast growing software category with players such as Hubspot, SharpSpring, Infusionsoft, Marketo and Act-On. In the course of investigating the Second-Stage Company’s current marketing tactics including their website analytics, the digital marketing agency often finds that the Second-Stage Company, while able to sustain a minimal level of sale, is not able to scale because they never truly understood the best-fit beachhead customer, their persona, jobs-to-be-done or pains & gains in enough granularity to automate the sales funnel.
In their recent publication – “The Entrepreneur’s Guide to Customer Development”, Brant Cooper and Patrick Vlaskovits discuss the application of a Proposed Funnel during Customer Discovery and a Sales & Marketing Roadmapduring Customer Validation. A funnel represents each step a prospect goes through, from blissful ignorance to happy customer, or from Internet “Googler” to satisﬁed user. The main point is that it is never too early in the Customer Development Process to begin to not only identify the target beachhead customer, but also to use the Customer Discovery Interview Process to identify their buying process. This helps to get in front of Customer Creation when it is time to activate marketing automation platforms.
As a result of this insight, The SearchLite has modified our Customer Discovery Interview Guide and other elements of our toolkit to help our inventor or Start-Up clients get ready to scale even as they conduct their early stage customer discovery and business model validation. If you would like more information about The SearchLite or our Market Discovery Challenges, please visit TheSearchLite.com or contact Scott Phillips at firstname.lastname@example.org / (734) 787-7509.
Last but not least, structure a learning plan. Embrace the Lean Startup tools and methods. Following this structure will cause you to write a learning plan. A foundational question to guide your learning plan in every part of your business model is “What do we need to learn before we invest more time and money?”
I especially like Todd Dunn’s final piece of advice!
“Last but not least, structure a learning plan. Embrace the Lean Startup tools and methods. Following this structure will cause you to write a learning plan. A foundational question to guide your learning plan in every part of your business model is “What do we need to learn before we invest more time and money?”
Using Blank’s customer validation process, you can develop your business model & your value proposition. Customer validation is step two of the Customer Development Model (the first is customer discovery).