Customer, market and business validation for early-stage startups

Customer, market and
business validation
For early stage startups
+ case study: TransferWise ~ the mission-driven startup

Hi, I’m Jeff!
Integral
Designs Bell Canada ING Bank Skype → Microsoft TransferWise
MSc -
Info
Science
Bachelors - Business

4 steps to world domination
Your
customer
Your
Business
Scale your
startup
Your
Market
Validate
Case Study
Grow

Validate
Your Customer
Proposition

How many startups START.
Intuitive understanding
of user need
Passion for particular
technology
Propose solution
= Successful startup?

How many startups STOP.
Intuitive understanding
of user need
Passion for particular
technology
Propose solution
= Successful startup?
← Not tested.
← Customer’s don’t care.
← Not based on actual.
customer needs.
← Not as likely.

Jobs to be done (JTBD)
Understand Customer +
Situation
“Your customers have a job and
they’re hiring your app to solve
it”
JTBD: weather apps, iPhone apps, SaaS/Services

Learn by focusing on JTBD
How valuable is getting that job
done for this type of person?
How many people have this job?
How often do they have this job?
How is this job currently being
done?
JTBD: more info/exercises
← Willingness to pay.
← Market size.
← Usage frequency/pattern.
← Actual competition..
(usually status quo).

Problem interviews
Your goal is to learn, not sell
Start before you build anything
15 mins per interview
Do 20-60 of them
Learn more: Jeff’s highlights, from this book
Demographics - who are they?
Tell a story - that covers several
problems they might have
Problem ranking - which problem is
most painful?
Explore problems - go in depth into
each problem they have
Hook & Ask - keep them engaged
Document - take 5 mins, write down

Structure: intro, demographics, story
Demo, as real as possible, iterate
Test price, don’t ask price
Raise friction, don’t lower it. Find
early adopters. Be the prize.
Solution interviews
Your startup goal is to build
the simplest product that.
solves a real problem.
Validate your understanding
of (1) customer, (2) product, (3)
market proposition
Visual demo of an MVP for
early adopters
20-60 interviews needed
The best blog post on pricing

...but...
You know what
customers need
It takes too long
It’s a waste of time

...but...
You know what
customers need
It takes too long
It’s a waste of time
← No you don’t, unless you’ve.
talked to enough of them, in a.
structured way.
← it’s nothing compared to.building.
something for 6 months and discover.
nobody will buy it.
← not if you learn what to build.
and who will buy it.

Increase probability of success by understanding
your key risks
Start with the big boxes
Value proposition, customer
segments, key partners
Start with whatever is most risky,
and figure out what you need to
learn to remove that risk.
Ask the hardest questions
first
Who’s this for? Why do they
need it?
How much money do you
need to make to break even?
Will anyone actually pay for
that?
How much will it cost you?

✅ ✅ ✅
✅
❓ ❓
❓ ❓

Collect high quality data & validate it
Make it easy for potential
customers to tell you
what they want:
Currency
“wishlist”

Research & explore
Use data where you
can… but not as your
only source
Ask “so what” and find
the insights - who can
we help?

Launching your MVP
Minimum Viable Product

Be an order of magnitude better
You need to be way better than
the alternative. Aim for 10X
10X faster
10X cheaper
10X more convenient
10X easier to use
or a combination

MVP Learning Cycle
MVP - does not mean
“minimum viable piece of crap”
You need to understand who
your customers are and
what they want.
Can your customers use
your product?
Can you do for the customer
what you actually
promise?

Is your MVP Successful?
You need to understand your
metrics and set realistic targets!
This will help you define success
and start iterating.
For instance:
New users
NPS
Cancellations
Conversion
See appendix for more KPI examples

Learn more about NPS, Product/Market fit
Achieving Market Fit
NPS! (Net Promoter Score)
Virality
Comments
Work on the detractors
Then neutrals
Then profit

Early startup KPIs
Do Not Focus On
Vanity metrics
i.e. total registered users, total volume transferred
Getting statistical significance,
split testing (A/B testing)
More than a handful of
metrics
Focus on
The 3 or 4 most important metrics
(KPIs) that indicate your progress.
Perhaps:
Growth & conversion
How you’re adding value
How much runway you have
Helpful to work backwards from
some target state (i.e. 10K new users)
and validate how you get there
Learn more about KPIs in the appendix

Incubation &
Achieving Market Fit

Listen to customers
They are usually your best
critics and advisors!
Surveys
Phonecalls
Meetings
The trick is not to give them
what they want but what they
need.

Iterate
Usually the one that iterates
fastest wins!
Prioritising is they key here
Make sure you know what
you effect and measure it!
A/B testing

Your startup
grows at.
the rate.
you learn.

What is scaling?
You have a mountain to climb to achieve
your vision - KPIs are your guideposts
Validation: It’s proof that you’re moving
forward
Investors/valuations

You have a hard job
You have a limited
opportunity to become
successful
Your success depends on how
quickly you learn.
Specifically, how quickly you
learn how to deliver:
A product customers value
A sustainable business at scale

Marketing: Find scalable channels
Always be testing
Massive differences
between channels
Stand for something

Keep your growth sustainable
Return the savings to
your customers or to
growth
Setup backups
Renegotiate as
you scale

Do less.
Time is your most limited resource.
Make the hard choices.

Get the basics
right
Full report here
Know your.Customers.
and focus on the.
customer job.
Don’t die.
Set up your team correctly.
(didn’t speak about but book recommendation .
at the end).

TRANSFERWISE WAS STARTED.
TO SOLVE A PROBLEM.

WHY DO PEOPLE RECOMMEND
OUR PRODUCT?

TO ACHIEVE ADVOCACY YOUR PRODUCT.
NEEDS TO BE AN ORDER OF MAGNITUDE.
BETTER THAN THE ALTERNATIVE.

PRICE
SPEED
COVERAGE
CONVENIENCE
BRAND

A BANK COULD HAVE STARTED
TRANSFERWISE AT ANY POINT IN
THE LAST 100 YEARS

PRICE
SPEED
COVERAGE
CONVENIENCE
A MOVEMENT

PEOPLE DON’T TALK ABOUT
MONEY TRANSFER IN THE PUB

GIVE YOUR CUSTOMERS.
STORIES TO TELL.

PRICE
SPEED
COVERAGE
CONVENIENCE
OWNERSHIP
PRIDE

INSPIRE PEOPLE WITH YOUR CAUSE
AND YOU WILL CREATE
A MOVEMENT.
BIGGER
THAN YOUR STARTUP

DRIVEN BY
EVANGELICAL
CUSTOMERS

€1 BILLION IN TRANSFERS
PER MONTH

€45 MILLION OF CUSTOMERS
MONEY SAVED EVERY MONTH

TALLINN
LONDON
TAMPA
NEW YORK
REVOLUTION SUPPORTED FROM
BUDAPEST
SINGAPORE
TOKYO
CHERKASY
SYDNEY
join us

Recap
Startups = learning: your job is to learn
Focus on customer jobs to be done (JTBD)
Problem interview → solution interview → build MVP
De-risk with business model canvas
Be 10X better, focus on KPIs, and listen to your customers
From TransferWise:
Cultivate a mission bigger than yourself

Learn more
Get in touch
jeff.mcclelland@yahoo.ca
Skype: jrmcclel
LinkedIn
Useful books you haven’t read yet
Lean startup,
theoretical
Lean startup,
practical
Bootstrapping
(starting without
investors)
Founder equity
that makes sense
These slides:

You’ll learn faster with good KPIs
Using well-defined KPI’s help
you learn faster:
Which products/features
customers value
How effectively you’re
scaling:
marketing channels
costs
operations
Which activities you should
focus on

5 principles of well-defined KPIs
Directional &
Not
Ambiguous
IntuitiveImportant
Reflects
reality
In control of
the group it’s
measured
against
if performance is good, it's
good for the user and for
the company
Can be explained why it's
important for the user and
to the company
Proportional to reality, dynamic
enough to raise attention (not flat
day-after-day), but not so jumpy
that you can’t discern signal from
the noise
higher or lower is always
better all other things
being equal
so that the team can commit
to and be accountable for
improvement (for targets in
particular)

The best metric/KPI
We did
another thing!
time
the
best
metric
We did
a thing!
Metric is stable and flat
when you’re not
influencing it

KPI Examples
Growth - Signups, Downloads, New users, Active Users, Revenue, Profit
Engagement/conversion - feature use, frequency of use, # features
Quality - Net Promoter Score (NPS), Customer Satisfaction (CSAT)
Profitability/Sustainability/cost per user (marketing and/or OPEX)
Churn - users stop using your product/service, downgrade
Virality/network effects - spreading the word, building the network, market
share
Speed/Efficiency/Backlog/Queues/Time to X - efficiency of your machine
Risk/Exposure - Leverage, FX Exposure, Value at Risk, SLA, cash/runway

Where does A/B testing fit in?

What are A/B tests?
Everyone believes they know
what’s right...but they’re often
don’t.
Everyone has biases
Scientific experiments
A/B Tests can help you learn
If done well they give you
unbiased “proof” of whether A is
better than B

When should you use A/B testing?
Work well for optimisation
problems - small iterative
learning
Product, pricing, messaging,
support all possible
But even if you could, you
sometimes shouldn’t as they can
be expensive. Learning is
expensive.

Get high volumes and be patient
waiting on results
Don’t corrupt with other
overlapping tests
Know basic statistics
AB testing 101
Are your results significant? tl;dr: no
It’s difficult to achieve statistical
significance
You need to:
Plan/design in advance
Pick the right KPI(s) & scope
Random or pseudo-random
allocation

Customer, market and business validation for early-stage startups

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