Building a Product from an Idea : The Lean Startup Way

We all have ideas. We all have felt the need of having something more to an existing solution or an alternate way of doing something which we often do. Startups and products are born out of this. The good part or maybe the sad part is that there are thousands of such ideas and products that spring up every day and it becomes increasingly difficult for these products to succeed in the market.

Of course having a great founding team with the right mix of technical, marketing and design skill set would go a long way in helping the product to wade through the clutter and be noticed but it still doesn’t guarantee the success of the product. It’s often easy for a founding team to lose direction early on in terms of what’s the right product that people are willing to use, or better, willing to pay for. There is an even worse scenario which I have often seen among founders when they try and convince themselves that the features and the products that they are building is the right solution based on intuition and practically zero metrics to back their claim. That’s suicidal.

It’s imperative for a startup to follow the Lean methodology’s Build-Measure-Learn loop. But before you enter the build phase, your first step should always be to do Research and understand the market you are going to target.

Research

First things first. One wouldn’t want to waste a significant amount of resource on an idea which has relatively zero market potential. So always begin by understanding the true market potential of your idea. You can start by asking yourself a set of questions initially:

  • Will my idea address a genuine pain point, if yes, what is it?
  • Who will be my potential customers and where can I find them?
  • Who are my competitions?
  • How different is my idea from what my competitions have?
  • Will I pay for a product like this? Would anyone pay for the product I intend to develop?
  • Are there are regulatory constraints?
  • What would my rough budget be and what would be the resources required for a basic product?

I’m sure you won’t get comprehensive answers to a lot of these questions but then the point of asking yourself all these questions initially is it helps you understand the market and the opportunity you are going after and sets the context right. Googling will give you sufficient inputs which will enable you to take a call on if it’s worth pursuing further. If you want to understand things a little deeper, do a survey or shortlist a set of people who will in the future be interested in the product and try and get their opinion on if they would actually pay for such a product (To be honest, at this stage it’s difficult to really understand if the users will pay for it at this stage, but do get opinion from people nevertheless.)

In already established markets there would be a fair number of research reports which you can leverage to understand in detail the market you are going after. An easier way would be to use Google Keyword Tool or Market Samurai to understand the demand for your idea. It’s always easier for a startup to build something in a space where there is an existing demand and is not fully saturated than to carve out an entirely new market. I am not saying that’s not possible but with limited resource at your disposal in your early days, trying to create a new market might not be the best option.

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Just did a search on Google KWT for the term Video Games and see the results. It has a fairly good number of searches worldwide. The KWT also gives you a set of related keywords which might help you even segment the entire market.

It’s important at this stage to try and segment the market you are going after. Having a generic solution won’t help at an early stage. Segmenting the market you are going after gives you a much better chance of validating your idea. The Idea can be expanded on to other segments as and when you grow and become mature. Also, make a shortlist of your competition and their offerings. This would give you a fair bit of understanding on the current market demand for various features and would allow you to understand how your product is different from your competition.

All of this helps you in getting a Problem/ Solution fit. It’s good to get a feel of the market even before you start prototyping and building a product. Like Eric Ries mentions in his Lean Startup methodology, it might be a good idea to just create a landing page and put up a “Register to get an Invite Option” and check how many click through to register and actually register. This is a trend followed by a lot of online startups and especially Apps. One of the most important tactics for an app’s pre-launch marketing strategy is to build up a landing page with an option for the users to subscribe to be notified when the app goes live. This would also enable you to get a feel of the solution you are suggesting for a problem. Again, the problem here is that often people without proper segmentation and without trying to get their target users to come on to the page would conclude that the idea has no demand in the market. This is why it’s important to segment your market and know your core group of audience. Hunt for them on forums, groups or anywhere they are available if you want to make people discover your webpage for free or else use Google Ad words or any of the Ad solutions to target your core group of audience. Understand if there is a demand for your solution.

The next stage in the product lifecycle is to develop an MVP (Minimum Viable Product) that would actually enable you to reach out to customers, engage with them and understand better the demand for the product.

Minimum Viable Product

The concept of a Minimum Viable Product was introduced by Eric Ries, the man behind the Lean Startup movement. In his own words :

The idea of minimum viable product is useful because you can basically say: our vision is to build a product that solves this core problem for customers and we think that for the people who are early adopters for this kind of solution, they will be the most forgiving. And they will fill in their minds the features that aren’t quite there if we give them the core, tent-pole features that point the direction of where we’re trying to go.

So, the minimum viable product is that product which has just those features (and no more) that allows you to ship a product that resonates with early adopters; some of whom will pay you money or give you feedback.”

According to me, it’s always a difficult task clearly understanding what exactly is “minimum viable” as far as your product/ idea is concerned. It would be different for each idea and category. Understand that if the product is as is any other competitor and there is no differentiation then the product you are shipping is in no way a “minimum viable” product. Focus on your core value proposition and how your product is different from the rest. If your differentiation is purely the experience that you give your users then ensure that when you ship out your MVP, you enable your customers to have that experience. Minimum Viable Product does not mean that you roll out a crappy product. In fact that would be suicidal as with Social Media these days it does not take a lot of time to completely kill your product or brand with a negative word of mouth. Of course the MVP can have bugs and there would be hundreds of features that could be added later. The early adopters that you manage to get are always going to give you a leeway and that’s because they genuinely need and value the core experience or the core feature your product provides. So ensure that the core proposition is in its entirety is reflected in the MVP.

Steve Blank in his book outlines the four stages to the Customer Development process with the following success end goals:

  1. Customer Discovery – Achieve Problem/Solution Fit
  2. Customer Validation – Achieve Product/Market Fit
  3. Customer Creation – Drive Demand
  4. Company Building – Scale the Company

This is a great framework for someone operating with the Lean Startup methodology. The initial research phase and the development of the MVP falls under the first bucket where in one achieves the Problem/ Solution fit. This does involve effort however you do significantly cut down on the unnecessary resource you would have spent otherwise on trying to create something which has no demand in the market only to realize that after you have pumped in all of your money and effort.

The Second phase of Customer Validation is where one achieves Product Market fit. This is the stage where in you actually try and sell your MVP and or make your customers to use it to tweak and bridge the gap between the Product and the Market.

Achieving Product/ Market Fit:

How exactly does one determine whether you have achieved product/ market fit? Different people will give you different definitions for Product/ market fit

“Product/market fit means being in a good market with a product that can satisfy that market,” according to Marc Andreessen

Andrew Chen

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Sean Ellis has created another metric for determining Product/ Market fit. He suggests asking existing users of a product how they would feel if they could no longer use the product. According to him, achieving product/market fit requires at least 40% of users saying they would be “very disappointed” without your product.

For me the whole idea of getting a Product Market fit is nothing but getting to a point with your product when a particular segment of the market which you have identified as your initial target segment embraces your product so that you can grow your company/ product scalably. Achieving Product/ Market fit as early as possible is crucial for any product as it allows you to then focus on company growth and not on iterating and pivoting the product. Spending significant money and effort on growth and marketing at this stage before product/ market fit is not an advisable strategy.

For a consumer company like Zoomdeck, Andrew Chen’s numbers stack up well. It’s important for startups to constantly measure during this stage and understand the behavior of their users. One needs to craft and test several value propositions, user flows, conversions, user interactions to effectively achieve a product/ market fit.

The priority here is to focus on the macro metrics, the right ones. Understand that optimization of micro-metrics comes at a later stage once we achieve product/ market fit. There are various macro metrics that matter; you may refer to Dave McClure’s AARRR model.

  • Acquisition – How many people landed on your website coming from a marketing campaign or through viral channels that you are tracking and then you acquire the user.
  • Activation – The user uses your product and completes a core action on the platform.
  • Retention – What is your churn? How many of the users you have in your user base are active? How many stopped being active and why?
  • Referral -How many of the users that are using your product are willing to refer to others?
  • Revenue -How many users are willing to pay you of the ones that are using the service?

During this stage out of the 5 macro metrics Dave suggests, there are only two that needs to be tracked comprehensively. They are: Activation and Retention.  Of course Acquisition is important as well because for measuring and optimizing activation and retention there needs to be sufficient users. But then the idea here is to not spend and focus on acquisition but to focus on Activation and retention in a core segment by minimizing your acquisition cost and optimizing it. Try and figure out the best and most effective channels to let your target audience discover your product and allocate a budget accordingly. Social Media these days provide a great channel for enabling your target users to discover your product, so utilize it to the maximum effect possible.

Try and map out the important actions on the platform that corresponds to the macro metrics : Activation and Retention.

Activation:

For a product like Zoomdeck, the activation process typically starts with the user signing up, uploading a photo and then adding a spot or by adding a spot on to another photo on the platform. ‘Spots’ are annotations on images which can be used by people to highlight any interesting element or story on photos. One can even link the spots to video, audio, maps, products, wikis, social profiles and more

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One has to decide on the percentage numbers for each of these macro-metric: Personally I consider 30% active users the day after signing up as a healthy sign for a consumer internet product

Retention:

Retention is nothing but getting the users back on the site regardless of the engagement they have on the site. You can define retention as mentioned or tie it to certain key actions on the platform. In general for a consumer product which is both creation and consumption based, it might be good to just consider the activity of the user coming back to the site as retention. For eg: Facebook or twitter might consider retention as the case of users just logging back in to the site. Engagement, however, is a different concept where a platform like Facebook or twitter would want the user to perform any major/ core user action on the platform like sharing content, liking or updating status or tweeting etc.

A good retention rate would be different for different consumer products/ apps depending on the nature. It would also depend on the customer usage cycle which tends to be shorter for a social gaming app while it tends to be a little longer for a platform like Zoomdeck. So based on your product’s customer usage cycle and general trend in your niche/category decide on your target retention number/ time frame ( 1 Day, 7 days or 28 days) to achieve.

Measure and iterate on both these macro-metric to get to Product/ Market fit. Use Funnel and Cohort analyses to better understand the user flows and the churn at each stage so that you can identify and improve/ rectify the non-required or wrongly crafted features and flows. Breakdown each user flow to understand in depth any issue there is. The idea here is not optimization for efficiency but the idea here is to validate your MVP. People often relate A/B testing with changing colors of the Sign Up button, yes, that might be a good way to improve on the conversions in some cases, but getting to product Market fit is all about validating your MVP, to get people to buy into the features or the experience it provides and then make them repeatedly come back to the platform. There would various broad scenarios:

Have high arrivals but low Conversions: Tweak your messaging and positioning to check if that helps in conversion. Also, ensure that the incoming traffic is composed of people you assume to be your target audience.

Have low arrivals but high conversions: Work on the channels to bring in more targeted traffic. Groups, Forums, Meetups etc of target community would be a great start. Try and improve on the keywords you chose for your PPC campaigns.

Have high conversions but low activation: Ensure people understand the interactions on the platform. Is it too difficult to understand or complete the core action on the platform? Would an interactive guide in the beginning help the user understand user actions on the platform?

Have low conversions but high activation: Are you bringing in the right traffic on the platform? Is the messaging right on the front page? Is the signup process easy enough or have you made it too difficult? Is there a clear call to action on your landing page?

Have low activation but high retention: A good sign to have a high retention number. However lower activation would mean either people are not interested in the core activity you have considered or people are not given an easy enough option to complete the core activity on the platform.

Have high activation but low retention: Low retention could be due to lack of interest in the product and it’s core feature. A product which genuinely solves a problem for a sect of people would have high retention numbers. Products which are not a must but is a luxury like Quora would need to constantly remind people and get through the clutter to improve on their retention numbers. Work on either.

The whole cycle would look something like the figure below. Keep measuring all the important metrics, learn and iterate on important features/ flows till you get to product/ Market fit. The earlier, the better.

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Post achieving Product/ Market fit, the company can focus on user growth and leverage their marketing spend to speed up the entire process. Utilize the best and the most effective channels to scale further. In the next post, I will cover in detail utilizing Funnel and Cohort analysis to measure each of the important macro-metric described by Dave in his startup pirate metrics, two of which we comprehensively track during the process of achieving Product/ market fit.

Amarnath Vannarath
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Amarnath Vannarath

Amarnath Vannarath is an Entrepreneur, Hustler, Growth Hacker. He currently heads Marketing for FieldEZ Tech Inc, a SaaS product company. He loves to travel, is a street food connoisseur and a passionate Soccer player. Blogs mainly on marketing, growth hack techniques and startups. You can reach him at [email protected]
Amarnath Vannarath
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