While start-ups are navigating product development and strategy in these uncertain times, it also presents an opportunity to start-ups to focus on becoming lean. I, Vatsal Kanakiya, CTO at 100X.VC will give you some guidelines about lean product development. Need for Start-ups to be Lean
A startup is an entity that creates a product under extreme uncertainty. There is no assured guarantee for start-ups. The driving idea is a hypothesis since you cannot be sure whether the customer needs your product, even if you have identified the problem effectively. The biggest attribute that can lead to failure is uselessness, i.e., there being no real need or motivation to the customer to get your product.
The case for being more lean is to better adapt to changing circumstances and to better implement changes when required. Start-ups need to be lean and develop agility within their organisation to deal with uncertainty. This becomes all the more relevant today where they need to evolve and adapt effectively to survive.
What does it Mean to be Lean?
Start-ups are under pressure to carry out both:
Customer development: Getting data and insights about your target customers and their behavior.
Product Development: The process of actually building your product.
Startups must be able to build fast and iteratively. Ease of change of product/solution is of paramount importance for young startups proactively devising solutions for their target markets.
An advantage that start-ups have is zero inertia since they do not usually have large teams and established procedures that they would need to uproot to pivot. They need to focus on extending their runway, not just in terms of months but also as opportunities a startup has to iterate or pivot in the future, until one has a product market fit. Customer Development Cycle
The first step is to identify the right customers for your product. For this, you need to carry out research and recognize the customers for whom the problem you are trying to solve is of high intensity and occurs in high frequency (pain point). Useless products, whether they are of good quality or bad, are equally redundant to a consumer base.
You need to get data from these identified customers about their habits, pain points, and other relevant behavior. There will always be some customers that don’t give honest feedback and provide deliberately contradictory information. Remove such customer feedback from the mix in order to focus on the relevant information.
Always ask for data, not features. Customers cannot tell you directly what they need, but they can tell you whether your solution is the right fit for them or not and whether they need any changes. Use the data that tells you what customers care most about, and create solutions and features that can address these pain points.
Use this feedback constructively to repeatedly iterate and model your product, which you can consecutively test again, until it finds a perfect fit in your customer’s base.
MVP: Minimum Viable Product
MVP refers to the minimum set of features that helps you validate the problem you try to solve. Understanding and formulating the MVP helps you understand whether you are going in the right direction, even if you do not have every element of your strategy prepared.
Eg. Flipkart, when it was founded, listed only its own products. There was no feature that allowed vendors to display their products on the website. Further, payments were almost entirely offline. This was Flipkart’s MVP. As more people began purchasing products from their website, they continued adding features and implements that solved problems and created a seamless shopping experience.
MVP allows you to build only so much in order to validate the product. It prevents wasting effort on building an entire product that may or may not have product market fit. Pivot VS Iterate Strategy
These are two different techniques that start-ups may use when reacting to certain feedback from their customers:
Iterate: to change the solution you provide so that it better meets the problem at hand.
Pivot: to change the target customer set itself such that it better fits your product.
Product Development Life Cycle
Eric Reese’s lean start-up movement believes that start-ups should first develop an idea, build it using technology, and sell the same to customers, after which customers should be leveraged to get data which is in turn used to build your idea further.
Some pointers to keep in mind as you go about this cycle are as follows:
It is important to have a fixed schedule and timeline, especially in the early days of your start-up.
Decide which team member is responsible for what and also appoint someone to make sure everyone gets their share of work done.
Identify and state the KPIs you will track over the timeline you have determined. Choose and define them well, for they will indicate your progress success levels.
Prioritize solution building depending on ease of building and its concurrent effectiveness in measuring an important KPI.
Decide a theme for each cycle. For example, one cycle can be about adding features, and another can be focused on improving customer retention. This makes sure that everyone is aligned with one goal.
Conduct a product meeting discussing all the points mentioned above and prioritize accordingly.
Brainstorm ideas together as a team to get the best results.
Write out specifications so that you avoid miscommunication between your team during the cycle.
It is essential to carry out the testing together at the end of the cycle.
Don’t interrupt the cycle, but wait for it to finish, usually two or three weeks, before making any different changes.
Asking the Right Questions
Getting data from customers might sound easy, but it can be tricky. It is important to ask the right questions to get what you want. If you directly ask them a leading question, such as, “would you buy books online”, they might answer affirmatively, but it might not be true. They might just say it to sound polite or might consider it a possible hypothetical scenario. This is dirty data and cannot be relied on for effective feedback. Questions must be framed such that useful, unbiased information is elicited from customers.
Thus, it is better to focus on the problem they face that you are trying to solve and their actions, such as:
The hardest part of the problem they face.
The last time they encountered that particular issue.
The reason why this posed difficulty to the customer.
The way they solved the problem.
The part they disliked about the solution they found.
Attempt to discover more information about the problem, instead of proposing a solution up front. The latter will be developed once you have deep insight into the problem faced by the customer.
Tracking the Right Metrics
There are two levels of metrics of importance to start-ups:
Primary Metric: This represents the value of delivery to the customer. It helps you know that customers are getting something out of the product recurrently, and this value actually exists, not just as potential. Common metrics are revenue and active users. While the number of signups shows potential value; the active users indicate the actual value and is thus a primary metric. Primary metrics are 80% of the story.
Secondary Metric: This tells the remaining part of the story. It shows the potential of the primary metric, actually creating value. Some examples are churn, retention, GMV, etc. When something goes off-track with the primary metric, this can help you analyse and understand where the issue lies. Secondary metrics tell the remaining 20% of the story.
How to Leverage being Remote?
Currently, all companies are adapting to working remotely. It would be a good idea to hold no meetings except the one in the product development cycle so that, each team member can focus on their share of the work rather than on discussions, which are often time-consuming. Since there are no disturbances when you work from home, you should ensure that decisions are made ahead of time. You can better utilize the time on your hands to do the creative part of your job rather than just the mundane part.
Working remotely can result in more motivated and comfortable employees as they have the ease of working from home and the ability to be asynchronous and prioritize much better. Using slack polls is a good means of conducting such micro-iterations without wasting the entire team’s productive time. To ensure smooth functioning when working remotely, it is necessary to put in a structure where you can execute without any interference.
Having a single meeting for all important communication and consensus building is important because it will filter only the most important points that need to be discussed. All redundant or unimportant issues can be dealt with at a later time. This allows the team to focus on the creative part of their job. Lesser interference, and effective delegation of work to achieve KPIs is what matters.
A remote team also allows employees to focus on their tasks, before undertaking those of their fellow colleagues or managers. It gives them the freedom to schedule their tasks, minimize interference caused by meetings and other distractions, and focus on achieving results for the task at hand.
100X.VC is an early-stage venture fund with India focus. We invest exclusively through iSAFE (India Simple Agreement for Future Equity), which is a standard document for such investments.
Future equity and future valuation: Through iSAFE, you do not need to decide your valuation immediately. It can be determined at a later stage. Also, 100X.VC can only lay claim on equity in the company concurrent to the investment amount. This means that we cannot seek to regain our invested principal amount.
This agreement is easy to execute in a week, whereas its counterparts such as an SHA can take months.
iSAFE is a standard document with very few requirements from the founder’s end. Board seats, voting rights, founder lock-in, founder salary etc. requirements do not exist for an iSAFE agreement. Investors do not have draconian power over the startup. Finally, it is publicly available on the 100X.VC website for anyone to refer to and read.
At 100X.VC, the goal is to be the first institutional investors, while helping start-ups refine their business model and go-to-market strategy. We also offer support in getting partners and clients connected. Our goal is to leverage our contacts and expertise to help startups grow to a point where they are more fund-able by future investors.
We made 20 VC investments which were showcased on pitch day in December 2019, and are currently looking for more investment opportunities for Class 02. Those interested can reach out to us at pitch@100X.VC.
Q1: For an essential goods consumer-based e-commerce website, will 72% retention and achieving 1.5 lacs in sales be regarded as reaching the proof of concept stage?
A1: This is a highly subjective question. Apart from revenue, your firm needs to be able to grow, get customers fast, and so on. One way to consider competitors and incumbents and analyse their metrics is when they were at your stage. This could tell you how you have performed to some extent.
Q2: How important is it to have the MVP in place as per your experience?
A2: MVP is not that tough to build for a firm. It allows you to validate whether your product has a market or not. So, it is absolutely critical to building it quickly to be able to get feedback and have the capacity to pivot.
Q3: How do you suggest prioritizing development, would you base it on immediate need or something experiential, which can be a huge hit if successful?
A3: It is important to keep metrics in place. The idea is to break the goal down into tasks which will help you incrementally change your product while also helping it become agile. You also need to make the decision based on your primary metrics and how those would change based on what you choose. Q4: Do VCs fund on ideation?
A4: From 100X.VC perspective, ideation stage funding is not the practice, and we would prefer at least the MVP in place since that tells us that the founder has taken the effort to put their idea in place. This can also help us validate your hypothesis and decide whether we wish to scale it up. Thus, it would be better to have at least the MVP determined before the funding.