03 Turning Products Into Companies
A bold vision to attract and unify the team
You’ve developed a great product, but how do you build a successful company around that product? Regardless of the product innovation, it can take several years to build a company. Markets change! In addition to investing in R&D, you need to prove market acceptance—then repeat and scale through sales and marketing.
This video workshop (2 hours and 4 minutes) offers a framework designed to help founders and entrepreneurs bridge the product-company gap, and includes the best practices for:
- Developing foundations
- Designing to fit
- Architecting to attract
Video Workshop: Turning Products Into Companies
On the go? Listen to the workshop below or subscribe on your favorite podcasting app:
Defining Your Minimum Viable Segment
Contributed by Michael Skok
The Importance of Minimum Viable Segment (MVS)
I find too many entrepreneurs who follow the lean methodology stuck in a product spin and consumed with their Minimum Viable Product. And it’s ironic because while I often hear about the importance of product-market fit, not enough consideration is given to the designation of the market side of this equation. Yet we all know your product isn’t going to fit the entire market from day one! So while the MVP is critical, it’s missing its dance partner, what I call the Minimum Viable Segment (MVS).
MVS is about focusing on a market segment of potential customers that have the same needs to which you can align. Defining and focusing on your MVS is vital because, without it, potential users who have divergent needs will quickly pull your MVP in many different directions. This, in turn, will bloat rather than minimize your product requirements and drain your limited startup resources. And that sucking sound won’t just be felt in product development but also in any Go To Market (GTM) activities, and then later on in service and support, potentially paralyzing your Business Model.
Here are just a couple of examples. Securing strong reference customers is critical in the early days of your GTM activities. And they can’t reference each other if they don’t have the same needs! Likewise, when it comes time to service and support them if you’ve had to build different solutions to their different needs they aren’t likely to have the same service and support problems. As a result, they’ll stretch your services teams. Instead, if they had the same needs and solutions, guess what – they may even be able to support each other in a customer community. That could save you a lot of time and money – especially if it fosters a “self-service” community, which I usually encourage my startups to create.
Find the same, similar or very closely related needs
What can you do about this? Focus. Focus on finding a set of customers who have the same or as similar a need, pain or problem as closely matching that of the other customers in your MVS.
To be explicit about this, it is the same NEEDS you are looking to fulfill and not for example features you want to build. What’s the difference you ask? For starters, customers don’t think in terms of features. They think in terms of pain and need. And while a feature might address their initial need, it’s not likely to stay on course with their needs as they evolve if they’re different from other customers. And as you’ll see below, it also becomes important beyond your product alone.
Is MVS another way of saying “Vertical Market”?
Your MVS might be a vertical, or be partly defined within a vertical, but it needn’t be and that isn’t likely the only way to define and focus on your MVS. For starters, if you pick a vertical like Financial Services, it’s too broad to be an MVS. You’d want to break it down into Banking, Brokerage, Insurance, etc. And then keep breaking it down further until you found a set of potential customers with the same need. For example, take the need for regulatory compliance. Then try to drill deeper into that need to find the pain. Is it the compliance itself or the reporting? What specific regulation is it? PCI or Basel II?
These will all have very different needs.
If you took the PCI compliance path, it actually applies outside Financial Services, for instance in eCommerce. And that is the starting point to think about needs that cross verticals. In fact, your segment could ultimately be anywhere where PCI compliance is needed. Hence not constrained to a vertical at all but to a segment where anyone needed PCI compliance.
Minimum = small enough to dominate
The Minimum part of the MVS is about keeping your segment as small as possible to be able to dominate it. Once you dominate it you can claim leadership. Even if this leadership is just in your MVS, it’s valuable to your positioning and referenceability for the next segment you want to go after.
So in our example of PCI compliance, you might choose to limit it to one of the verticals as well and just do PCI compliance for eCommerce if all those customers exhibit the same need.
Viable = where you can succeed with your MVP
As you ponder your MVP, look at which segment will have the least product requirements. So again in our example, is that PCI compliance for Financial Services or eCommerce?
Let’s say you determine eCommerce applications are a better bet as a small startup as they are less stringent and perhaps you have some related domain expertise on your team, making it more likely to set you up for success.
Iterate your MVS, just like your MVP
Let’s try refining our PCI compliance for eCommerce MVS. Could we see all customers having the same requirement? Perhaps as we interview, we find that we have ISVs offering eCommerce solutions and we also see Merchants having the same need. Which should we focus on? Again maybe as we iterate we find we’re better suited to serving the ISVs and even gaining some leverage as part of their solution rather than going direct to Merchants. Or you may need to drill further and figure out if there’s a certain size or type of eCommerce ISV that really has the same needs. Refine and refocus your MVS accordingly.
What else comes into play?
Honestly, there can be many factors to help you with your MVS. At least a few I’d recommend thinking about are:-
- How tightly knit are the customers in your segment?
- Do they talk to each other in (for example) community forums, trade associations and the like? The closer tied they are, the more likely they are to reference each other efficiently. Think of this as the beginning of your viral loop.
- Channels to your MVS
- Following the point above, if your MVS can all be reached via the same channel that can be a big boon to your marketing focus.
And of course, there can be other factors that could help, like finding an MVS in a close geographical area so you can easily reach them – a critical attribute in a high-touch oriented solution.
Thinking ahead to adjacencies
If you can think ahead from where your first MVS is to the next ones, it can be very helpful to pick adjacent segments that closely align with each other and could have at least similar attributes so that you can leverage work from one MVS to the next.
Minimum Viable Segment is such an obvious concept once you see it in practice. However, it’s amazing how I see it elude entrepreneurs in one form or another. In particular, they tend to see everything as a product problem, rather than stepping back to look at where their product is targeted. Others simply can’t resist the temptation to take money from customers and stray from their MVS in the belief that they will succeed regardless. Yet with some simple work on an MVS to intersect with your MVP you can really get focus on the right product issues to address – e.g. those that will address the common needs of your MVS customers. And you’ll build a much more profitable GTM and Business Model thereafter.
So find your MVP dance partner with MVS and enjoy the party!
Scaling Your Startup: The Deliberator’s Dozen
In the early stages of a startup, your primary objectives center around defining the problem and value proposition to address a large market opportunity and coming up with breakthrough innovation that creates a defensible basis around which to build a company. Eventually, and oftentimes very quickly, this turns to a company’s ability to execute, and knowing when to scale is a key part of that.
Too early or too late? Sync and Pace…
Scaling can become a critical issue because if you scale too early it will cost you dearly and if you scale too late you may miss the opportunity to lead. And as an investor, my job is just two things in this regard. Sync and Pace. Stay in sync with the team, and bring perspective to ensure we are keeping pace with the opportunity for them to win. With that in mind, I’ve created a framework to help you think about scaling. I call this framework “The Deliberator’s Dozen.”
That is to say, these 12 things can help take the guesswork out of whether you are ready to scale or not. So if you’re in doubt, because you’re not getting repeatability and predictability in some or all of the metrics and measures below, then that should inform your decision. A business that is ready to scale is one where:
- You can package your product or service and sell it repeatedly without major modification.
- Your marginal cost of customer acquisition is reducing.
- Time and cost for customers to adopt and deploy your product or service is lessening and the engagement from your customers is increasing toward a long life cycle value.
- The servicing costs for your customers are reducing.
- The upgrade cycle for your customer is shortening and the dollars generated from upselling are increasing.
- Your ability to innovate and create differentiated IP and to meet market needs is validated by customers and partners who are themselves building on your products and services and investing in your ecosystem.
- You are able to develop disruptive and defensible business capabilities in things like your go-to-market model.
- Your business model is showing real leverage and at least a potential path to profitability that attracts the funding to keep growing.
- The time and cost to attract, onboard, and people productive in all major areas of the company to support growth (e.g. sales, services R&D, etc.) reduces.
- Your management team is successfully developing and promoting people from within into a cohesive culture that is as good as dealing with problems as success and is respected as such inside and outside the company.
- Your market opportunity is continuing to be validated as big enough and growing fast enough for you to be able to meet stakeholder expectations for years to come as you scale successfully.
- Even if you are “changing the world for the better,” you have learned not to “drink your own Kool-Aid” and instead validate your metrics from the outside in. And with all that your gut still tells you you’re excited to get up every morning and do it again faster, better, cheaper!
I am lucky enough to be working with quite a few companies that are scalable in our portfolio, including Actifio and Acquia*. Actifio, known for radically simple storage, grew 700% last year and is recognized as the fastest-growing storage startup on record. And Acquia, the commercial company behind the wildly popular social publishing platform Drupal, has been recognized by Inc. as the fastest-growing software company in America. In its short life as a startup, Acquia has acquired almost 4,000 customers across five continents and built operations in eight countries.
So what can we learn from companies like Actifio and Acquia? In many ways, they exemplify how to overcome the “Deliberator’s Dozen” first and foremost by building great teams who are continuously focused on what they can do better in the market. Along the way, they assume nothing, challenging all the points and more raised above. Yet I never see them deliberate or even hesitate when they see a chance to engage the market and learn from it.
I’m sure there are other factors. What is your experience and what could you add to this list? Please share your thoughts in the comments below.
*Thanks to the teams at Actifio and Acquia for their contributions to this column (originally published in The Wall Street Journal).
Case Study: Demandware
You’ve probably heard of Minimum Viable Product or MVP. But what about MVS? Minimum Viable Segment is just as important and can help you further narrow your first product development required to get repeatable traction.
As our case example, Jamus Driscoll SVP Marketing at Demandware shares how critical it was to segment in great detail to find their initial customers.
Case Study: SolidWorks
John McEleney, the former CEO of SolidWorks, discusses how the 3D design company became a market leader. He reviews how it is easy to start a company but hard to build a business, offering an instructive view of the approaches he took that led to his success and the company’s ultimate acquisition by Dassault Systems. Learn about concepts employed by John, such as:
- Events forcing actions
- The perfect is the enemy of the good
- The importance of hiring and creating the right culture
- Taking incremental steps and his 1-5-0-3 rule