How customer development failed us

Guest post from Andrew Elliot of Lottay

One of the attributes of great entrepreneurs is that they are tenacious and relentless. This guest post is from Andrew Elliott of Lottay. Andrew read the Four Steps to the Epiphany, tracked me down at California Coastal Commission hearing in Santa Barbara, and had me meeting with him in a stairwell during a break in my day-long meeting.

Here’s his story of when Customer Development failed.

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Hi, we’re Lottay!  We’ve been a startup for the past two years or so and we’ve come to a critical point on this crazy roller coaster ride.  Here’s our story:

We started like most entrepreneurs — an idea, an opportunity, and very little money. Our vision was to radically change the gift card industry. We were lucky to learn about Customer Development early on in the life of our startup.  It made more sense than our 60 page business plan predicated on a B-school class and a supernatural ability to predict the future. More importantly, we’d witnessed Customer Development’s massive success at another local startup.

We bought Steve’s book, started product development and began reaching out to customers ins search of our first earlyvangelists. Along the way we were fortunate to meet Steve, develop strategic partnerships, and raise a series A round of investment.  Confident we were doing It right, we pressed forward.  We even had some pretty monumental successes.  

So, how did Customer Development fail us?  Well, perhaps it’s more accurate to say that we failed customer development.

In retrospect, our mistakes fell mainly into one of two categories:

(1) Failure to follow the process

(2) Failure to be honest with ourselves

If we could travel back in time to that fateful meeting at the Coffee Cat and give ourselves a good talking to, what would we say?  Well, it just so happens that we’ve fitted Ross’s 2001 Subaru with a flux capacitor, gotten our hands on some plutonium and we’re about to hit eighty eight miles per hour!  Here’s what we plan to say:

Write it Down
This seems so obvious, yet it must be said: write down and track the evolution of your hypotheses. It’s something that’s almost too easy to gloss over — keeping track of your hypotheses and the results of your customer development work are vital. Failure to keep track of our hypotheses meant we were never quite clear on what was working and what was not.  This meant we had a hard time focusing our development.

It’s your vision, damn it!
The customer does not define the product or vision for the company. The founders do. In Four Steps to the Epiphany Steve says you’re looking for a niche – he means that you’re going to hear a lot of “No’s” and that’s okay. What’s not okay is letting these non-customers define your vision daily.

Failure to maintain a coherent vision allowed us to pitch one thing, “It’s a virtual gift card you can spend on anything!” while selling something else, “It’s an ecard + money!”  After a while even we didn’t know which was our actual vision.

Make money or take money?
Focus on revenue from day one.  It’s the only reliable metric for success. You may think you’ve found your earlyvangelists but you can only be sure when they start making you money.

Taking outside investment gives you options. But with this money comes temptation. Temptation to focus on growth and worry about revenue later.  Temptation to stay the course when your gut tells you it’s time to change.  Making revenue your first priority does so many good things for you as an entrepreneur – saves cash, validates customers, and tells you if you have a real business. It’s only a business if you make money.

Fail fast and move on
Being honest with yourself is perhaps the hardest part of being an entrepreneur. You’ve sold your friends, your investors, and yourself on your vision. You wouldn’t be putting yourself and your family through this if you didn’t believe in your idea. So who keeps you honest and tells you when you don’t have a business? Your customers and your hypotheses.

There may come a time you need to face the fact that the earlyvangelists you thought you had are actually just very polite users.  Face the fact that your product won’t be able to make money or scale.  Face the fact that your hypotheses are all wrong.  And ultimately, face that fact that it’s time to majorly rewrite your vision. The sooner you face these facts the more chances you’ll have to course-correct and win.

The future?
Now that we’re back from the past, how are we moving forward?  Well, we’re back to customer discovery. And this time we’re writing it down. In fact, we’re creating a simple software solution that guides us through documenting customer interactions and validating our hypotheses (let us know if you’re interested in testing it). We’re also charging customers and partners right off the bat for our services.  And we’re using that money to do more customer discovery and validation. Finally, we’re holding ourselves accountable to our vision and hypotheses.

Disclaimer
Keep in mind that our opinions are just that. We may have no idea what we’re talking about. After all we’re just some guys trying to make it in this crazy startup world.  We’d love to know what you think. Do these ring true to you?  How do you keep track of your vision and hypotheses?Leave a comment or email us at contact@lottay.com.

(For more from Steve, visit his blog)

(Be sure to pick up Steve's "must-read" book: "The Four Steps to the Epiphany)