Chapter 5 Diving In

King Sisyphus angered the Greek god Zeus with his hubris and avarice. His punishment? To roll a boulder up a steep hill, only to see it roll back down before he reached the apex and to be forced to begin again. For eternity! This is what they do with those more concerned with creating wealth than value in Greek mythology!

Albert Camus, leaving aside the nature of King Sisyphus and what got him into his predicament, believed the struggle of rolling the boulder uphill to be life affirming and believed the King, in the end, found contentment. Perhaps the King had learned his lesson and was forced to find comfort in the act of hard work, rather than merely the accumulation of materialistic rewards that one can’t take to the afterlife.

“I leave Sisyphus at the foot of the mountain! . . . Each atom of that stone, each mineral flake of that night-filled mountain, in itself forms a world. The struggle itself toward the heights is enough to fill a man’s heart. One must imagine Sisyphus happy.”

—Albert Camus, The Myth of Sisyphus

There is, perhaps, an entrepreneur story we can pull from the Greek tale. Like the King, the job of an entrepreneur is to roll the boulder up a steep hill. Those whose sole commitment is to the riches that await are doomed to see the boulder roll back down. Those who are committed to creating value, may see the boulder crest and roll down the other side of the hill. Victory!

The myth of Sisyphus occurs from the observer’s side, by those who witness the success of the boulder tumbling down the side of startup success. The observer believes the entrepreneur is successful overnight and momentum is easy. They see the entrepreneur as visionary and success as a reward for faithful execution.

The observer never sees the entrepreneur struggling, failing, and learning while rolling the boulder uphill!

Listen to Your Customers—or Not

In the entrepreneurial world, is there any more divisive a topic than the proper role of the customer in innovative endeavors? Other than the (near) universal acceptance that customers should either pay for product or amass in such numbers that they can be otherwise monetized, advice on how customers should influence your business decisions is all over the map. Countless books, blogs, and bloviating business gurus repeat common customer cliches: customer is king, be customer driven, the customer is always right, and so forth. Yet, it’s not too difficult to find link-bait headlines claiming the exact opposite: Ignore your customer; “Mark Cuban on Why You Should Never Listen to Your Customers”;¹and Steve Jobs, who supposedly said, “We do no market research,” yada, yada, yada.

The thing is, both sides are right.²

This brings us to an innovation axiom: The more disruptive the solution, the less you can believe what customers say they need or what they will do. Innovation is an overused, tired word, but let’s say that innovation refers to meaningful change, forgetting for a moment its use as buzzwordy, marketing hype.

Clayton Christensen coined the term sustaining technology to refer to meaningful technology change that improves existing products for an existing market. In other words, both the problem and solution are known. The value stream is understood and has been translated into specific processes that are being executed and, ideally, continuously improved upon. Part of the value stream includes methods of working with customers to understand what product improvements would most benefit them.

Some of these improvements are so obvious one needn’t even ask the customer. If you can boost performance, boost capacity, lower total costs of ownership, you really don’t need to seek your customer’s reaction first. You can believe them, however, when you ask them if they like the idea. You might even be able to ask the simple question, “What would you like from us?” and executing on the answer will generate revenue. Although Christensen talks primarily about technical innovation, meaningful change doesn’t have to be technology driven or at least not directly so. Innovation can come from new distribution, for example, or different packaging, new features using existing technology, exceptional user design, and so on. The phrase sustaining innovation captures all the ways existing markets can be marginally improved.

On the other end of the spectrum is what Christensen calls disruptive technology. As with sustaining innovation, disruption needn’t only be technological, so we talk about disruptive innovation. Disruptive innovation causes massive change. It creates whole new markets or turns existing markets completely upside down, so that suddenly (seemingly), new companies are at the top of the food chain or large chunks of a market suddenly belong to a new competitor.³

• The iPhone killed dozens of startup companies planning on offering mobile services across a variety of handsets in partnership with major telecoms. Entire companies were replaced by the iPhone (and then Android, too) with free or 99-cent apps. The iPhone also threw several major handset manufacturers into long, painful declines into irrelevance.

• iTunes is disrupting the music industry.

• Salesforce.com not only turned the CRM industry on its head but also was the first hugely successful software-as-a-service (SaaS) business model.

• The Prius disrupted the automobile industry.

• Amazon continues to disrupt the publishing industry.

Disruptive innovation is often stumbled upon. The nature and scale of change is a black swan, which Nassim N. Taleb defines as having three fundamental characteristics:

1. “It lies outside the realm of regular expectations” [it’s rare].

2. “It carries an extreme impact.”

3. “Human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable” [retrospectively].⁴

Not only is the market for disruptive innovation unknown (prior to getting to market), it’s unknowable. You think you know, because you have a strong “vision” of the future—but so do astrologists and fortune-tellers. You don’t know the market until the market weighs in. If you don’t know, your customers certainly don’t. With disruptive innovation, you can’t ask customers what they want, because they don’t know what’s possible outside their existing domain knowledge.

Steve Blank’s new market correlates to Christensen’s disruptive innovation. Steve also coined two new terms, resegmented niche and resegmented low cost, demonstrating that innovation exists as a continuum. There are many examples of applying existing disruptive innovations to new markets, something we call rippling innovation.

• Resegmented low cost targets the most price-sensitive subsegments of an existing market.

• Resegmented niche targets a subsegment that can be better served with a product tailored to their specific needs.

• Rippling innovation targets an existing market that has not yet benefited from a disruptive innovation.

The face-value believability of your customer depends on where you sit on the innovation spectrum. As mentioned earlier, if you ask your existing customers if they want increased performance, it’s highly likely you can believe their response. Circa 1990, if you asked your customers if they would like increased disk capacity in their 5¼-inch drives, you’d be surprised if they said no. If you asked the same customers if they could use a 3½-inch drive, they might ask, “What for, as a paper weight?”

Instead, you must find a new market for the 3½-inch drive. You must discover the early adopter. The power of early adopters comes from their ability to recognize what it is you’re up to. In other words, if you ask someone if they could use a 3½-inch drive and they say, “What are you doing, building a portable computer?” then they get it!

Believing the Customer

Here are some guidelines for when you should and when you should not believe what your customers say.

Pro tip: Believing them doesn’t mean you do what they say.

• If you’re talking to customers about improving a product they know and love, you can believe them.

• If you’re talking about introducing new product and through interaction with them get the feeling they get it, you can believe some of what they say.

• If you ask existing customers if they want something radically new, their response should be treated with skepticism.

• If you ask prospective customers if they’re willing to pay for your great idea, you shouldn’t bank on their response—either way (yes or no).

• If your great-uncle loves your idea, that’s wonderful, but not actionable advice (unless, perhaps, he’s in your target segment).

Customers in your target market move from right to left on the innovation spectrum as you engage them. When you introduce a new product, early adopters are already to the left of the disruptive-innovation endpoint. This is why they are so valuable, because they provide you relevant feedback.

The moment any customer becomes somewhat satisfied with your product, that customer has moved further left of the end-point. The more engaged they are, the more passionate they are, the further to the left they’ve moved.

Listen up. If you have customers who are highly engaged with your product, listen to them. Listen when they complain, listen when they ask for features, listen when they praise you and thank you. This is market pull. This is what gets you to product-market fit. Listening, however, doesn’t necessarily mean doing. It’s up to you to figure why the customer is asking and what the best response is. The question, then, is do you execute on what they say, and if so, what do you execute on?

The answer depends on whether you understand your market segments.

Remember that chapter?

You should execute on the things customers say when they are members of the market segment you’ve decided to crush. If you have segmented your market properly and are tracking engagement with your product by segment and tracking feedback by segment, you will know how to prioritize features. (By features we mean any characteristic of your business or any activity pertinent to delivering value to your customer. This could be distribution, packaging, messaging, product features, and so on.)

Listening to what your customers have to say is only one way to validate your assumptions and grow your business. There’s also the ethnography of watching and measuring what your customers do.

Lean startups use three primary methods of testing the validity of their assumptions:

1. Customer interaction.

2. Running experiments.

3. Analyzing data.

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Customer Interaction

Customer interaction is a catchphrase for the myriad ways successful entrepreneurs engage with their customers in order to learn from them. Some of these methods include:

• Steve Blank’s customer development.

• Observation.

• Various user-centric design methodologies.

• Consultative sales.

• Living the life of your customer.

We are perhaps biased toward customer development as a result of having worked in high-tech startups through the frustration caused by executing unknown processes. Steve Blank offers a remedy to such unknown processes in The Four Steps to the Epiphany. At the risk of restating the obvious, there are two primary objectives to all these techniques:

1. Learn. Your job is not to be faithful to your product, value, and market assumptions, but rather to validate or invalidate them, in order for you to be able to iterate toward reality.

2. Don’t waste. The point isn’t to fill out worksheets, create new deliverables, fill out your assumptions in triplicate, or increase interview efficacy by conducting the stand-on-your-head interview technique™. What do you need to learn to move the needle in your business?

In a story told in perhaps every lean book written, a Toyota chief drove through the 50 United States and the 10 provinces and three territories of Canada, mostly in a minivan, in order to experience what American and Canadian auto consumers experienced in their daily lives.⁵ This is customer development done by the world’s largest automobile manufacturer, so surely it can be done in your business!

Customer Development

Here are the eight basic steps we outline for practicing customer development:

1. Document your primary assumptions:

• Who is your customer? (market segment)

• What problem are you trying to solve? (pain, passion, customer goal, job to be done)

• What’s your (pie in the sky) solution idea? (not features, but value proposition)

2. Brainstorm other business-model hypotheses:

• Partners, distribution, and so on.

• Product platform, design, functionality.

• Sales and marketing funnel.

3. Find prospects to talk to:

• Use your social network (e.g., Facebook, LinkedIn, Twitter, and so on).

• Craigslist, surveys, meetups, forums, and so on.

• If you are unsure of who to talk to, start broad and work to narrow the field to those who understand the problem you’re trying to solve (early adopters).

4. Reach out to prospects:

• E-mail and phone-call techniques.

• Selling before building and informational interviews.

• Don’t overplan; just get started!

5. Engage prospects:

• Customer-problem-solution presentation.

• Use open-ended conversation techniques.

• Be respectful of people’s time and expertise.

6. Compile-measure-test:

• Iterate on customer, or problem, or solution assumptions.

• Move on to minimum viable product (MVP) testing.

• Pivot because something in your business model is fundamentally wrong.

7. Problem-solution fit/MVP:

• Iterate on product toward market viability.

• Quantify the value you provide the customer.

• Investigate the sales and marketing road map.

8. MVP achieved:

• Market viability validated, move on to validate other business-model assumptions.

• Return to earlier assumptions because something is wrong.

• Pivot because something in your solution hypothesis is fundamentally wrong.

Sounds simple, right? You can be done in a couple of months at the outside. Wrong. Startups iterate and pivot and persevere on all that, trying to find product-market fit with their no longer minimal MVP, easily spending years trying to figure it out.

These steps represent one possible approach organizations might find helpful when implementing customer development. The reality is that since all organizations are different, it’s up to you to figure out what works best based on the uncertainty you face, where you are in your product development, and what resources you have available to you.

Your goal isn’t to go through the steps. Your goal is to learn. The process is rarely as linear as it might seem. You can learn a ton about conversion funnels at the same time you are validating your market segment assumptions. Really! You don’t have to wait until step 15 in the Cooper-Vlaskovits Paint-by-Numbers, Startup-to-IPO Blueprint before you learn how to sell B2B.

Case Study: Don’t Just Get Out of the Building, Get Out of the Country

In 2008, a group of talented individuals led by Jane Chin came together to make an impact on the world. They were MBAs, lawyers, and engineers from the top universities around the world: the Indian Institute of Technology, Harvard, Stanford, and MIT. This group had very little real-world experience in terms of building a business and commercializing products. They didn’t know what they didn’t know, they had little fear, and they approached the world with open-mindedness. Rather than pursuing careers in Silicon Valley or Wall Street, with the help of Andy Butler at D2M, a design consultancy, the Embrace team entered the world of social entrepreneurship.

The problem they hoped to solve? Save babies being born prematurely in third-world countries. The solution? Make available an extremely affordable incubator at a price level appropriate for the third world.

Andy Butler: “To start out, they were thinking, ‘Let’s just take a conventional incubator paradigm and try every way to cost reduce it,’ and there are a whole bunch of ways you can lower costs using off-the-shelf components rather than specialized components, and so they went down that path and made progress exploring severe cost reduction for a stationary incubator.”

In the lean spirit of genchi genbutsu, “going to the source to see for yourself” (The Toyota Way, p. 40), the team not only got out of the building, but got out of the country. They went to India and spent time working in the hospitals and interviewing doctors. They found quite quickly that the primary need was not to find solutions for preemies, per se, but rather for low-birth-weight children, regardless if brought to full term or not. The bigger impact idea was a mobile solution for undernourished, underweight infants.

Out in the market they saw that though children were tragically dying due to premature birth, the bigger problem, in terms of the sheer numbers, as well as long-term sociological impact, is undernourished mothers giving birth to undernourished children. Because the infants don’t have enough body fat on them, they suffer hypothermia while the mothers work. So the mother can keep the baby warm as long as she holds it next to her body, but because the mothers have to work, they can’t hold the baby. There are periods of the day where they have to let the child essentially generate its own heat and, during those periods of time, they suffer hypothermia and it doesn’t result in death but, rather, it results in physiological issues. Either delayed development, neurological damage, or even physiological damage, which puts a long-term burden on the society because these children grow up having severe medical issues.

Having a much deeper understanding of the problem, the team switched gears. Instead of doing some sort of sustaining innovation—making something existing perform better, faster, or cheaper—they looked toward developing a solution that didn’t exist; a solution that would somehow allow the mother to keep the child close beside her and somehow keep the baby warm, while still able to perform work in the field or in the factory or her own home.

Butler: “Through their engagement with reality and away from the theoretical thinking, and in large part due to their open-mindedness—in that they weren’t an incubator company; they weren’t tied to a particular solution—they were open to change the paradigm.”

The team went into a period of heavy testing, “fail early, fail often” prototypes for all sorts of proposed solutions. They learned fast and evolved their ideas. They remained out in the field in rural villages in India. They went to the source. They talked to midwives, worked with mothers who had low-birth-weight children, worked with the local doctors who were struggling in rural hospitals where electricity was intermittent. It was through that experience that they came up with their current solution.

As is the norm when working on the disruptive side of the innovation spectrum, one can’t simply ask the customer what they need. A woman with an undernourished baby would hardly say to inquisitors, “You know what? I need this really sophisticated incubator sling that I can bring with me to the fields!” Engagement and creativity on the innovators’ side is required to reveal the solution if one is to be found at all.

Butler: “You can ask them what their pain is. You can ask them what they struggle with. What they worry about. What they desire. But ask them to articulate how they’d satisfy those issues, that’s beyond their capability. So it’s the designer and the innovator’s job of taking that information and being creative in fashioning potential solutions and learning as much from the rejection of proposed solutions as the acceptance. The rejections themselves reveal a whole range of values that you may or may not have been aware of. You always find a treasure trove in rejection.”

The “Aha!” moment for the Embrace team, around which the whole architecture eventually revolved, was getting to a system that was essentially passive. They had to come up with an energy storage mechanism that would work in the fields or in locations without electricity.

Butler: “It turns out you can engineer paraffin to melt at different temperatures and so when it goes from a solid to a liquid, it can absorb way more energy and when it converts back from a liquid to a solid, the energy is released gradually so you can store hours of heat energy in what looks like two or three Ziploc bags of paraffin.”

So say you are a mother. You are undernourished, but have also recently given birth to an undernourished daughter. You work in the fields every day. It is necessary to bring your baby to the fields. Before you go, you melt the paraffin pouch over fire or even on a black sheet metal and put it into one sleeve of the Embrace “sleeping bag.” When you get to the fields, maybe you can hold her for a little while, but reluctantly must get to work. You have to pick the grains. So when you go to put the baby down, you put her into one pouch of the Embrace “sleeping bag.” In a side compartment, paraffin is solidifying and as it does, it releases energy that keeps your baby warm, so she doesn’t become hypothermic.

How you interact with your customers evolves over time and depends heavily on what you are trying to learn. At the beginning, the most important objective is to simply establish what will hopefully be a long-term relationship based on empathy.

The most typical problem entrepreneurs have when first speaking to a customer is that they are unable to resist talking about their solution. No matter how they originally frame the conversation in order to get the meeting, the entrepreneur inevitably starts out with “I have this great idea!” This is pretty lame. The feedback you get is lame. It’s way less painful for your customer to nod and say, “Yep, that’s a swell idea!” and send you on your way than it is for them to get into an involved discussion about why your idea is lame, only to hear you say things like, “Eh, you just don’t get it.”

If you don’t have a deep understanding of the pain or passion of your target customer, you have no business talking about your solution. No one cares about your product. Seriously, no one cares about the features, the platform, the architecture. They care about solving their problem, and if you are truly in the business of solving the problem, you should want to know as much as you can about it from the customer’s perspective.

Over time, after you understand their problem deeply, then you can start working on qualitative validation of solution specifics, and you can start working on learning how people like them want to be marketed and sold to. Also, you can start showing them early versions of the product and watch as they attempt to use it. You can learn what is required for the product to work within the customer’s environment, whether it be home, vacation, social setting, work, and so on. What type of product will work within their existing life or work flow. With any hope, further down the road, you can validate what functionality is a must-have. You can establish what will turn them into passionate advocates, rather than just satisfied customers.

Be a Zoologist

Observing your customers in their natural habitat is a powerful way to understand a day in their lives; in other words, you can begin to empathize. When TechStars entrepreneur Reece Pacheco co-founded HomeField to help college coaches manage and share game video, the effort involved supporting nontechnical people with a technological solution was surprising.

Pacheco says, “It was not until I spent time in the coach’s office that I began to understand the problem we were solving. It was different when we were on his turf, than, say, bringing him in to look at what we were building; not only the pictures on the wall and the DVDs stacked on his desk, but the way he interacted with us.”

Turns out supporting coaches (their target segment) was a big technical hurdle. The coaches used specific IT-mandated browsers, and didn’t really understand the difference between e-mail in a desktop application versus browsing web-based e-mail.

Pacheco reports, “We had one guy who couldn’t access a video because his e-mail client was Lotus Notes. Uploading videos would time out, because the computer would go to sleep before the video file was uploaded. But these things were our fault, really, not our customers’. We needed to understand their environment, provide the right, easy-to-follow instructions and make the product incredibly easy to use, if we wanted to be successful.”

Scott Anthony documents a couple of great examples from Procter & Gamble. CEO A. G. Lafley observed a woman using a screwdriver or scissors to open a Tide box. This from a woman who said she liked the packaging! Watching a woman trying to clean up coffee grounds spilled on her floor inspired P&G’s Swiffer quick-cleaning line. According to Anthony, the makers of Wrangler and Lee jeans, VF Corporation, revamped their jeans labeling and created new in-store displays after observing a woman shopper bringing an armful of jeans into the dressing room. The current labels were useless regarding fit for different body shapes.⁶

Steve Jobs visited his retail stores not to ask customers what they wanted but to observe customers, supposedly even hiding in the bushes!⁷

Observing customers is a matter of intuition. You are attempting to glean insights into what the needs and desires of customers are, but it’s up to you to envision the solution to those problems. The customer owns the pain, whereas the founder owns the vision.

Be a Doctor

Doctors poke, probe, and prod in order to understand not only what patients are feeling (both emotionally and physically), but why. Patients often are reluctant to tell the truth about such things out of fear, denial, and perhaps a lack of self-awareness. Empathy is an important component of doctor-patient relationships in order to enable better communication, but also so that the doctor can understand underlying issues that may be affecting the patient’s health. Not that all doctors have a good bedside manner!

Nonetheless, entrepreneurs must aspire to the same thing. Empathy is a cornerstone of successful entrepreneurship. You simply cannot solve a problem if you do not deeply understand the problem you’re solving, and you cannot design a solution if you do not deeply understand those that will use it. Further, you cannot have this understanding for huge, undifferentiated groups of people, but by understanding the needs and desires of your subsegments, you might be able to design an experience they will pay for. Additionally, perhaps, you’ll learn what needs to be added or taken away, or the different ways required to market and sell to different segments.

Empathy, like most other skills, appears innately in some, but can be learned by others. Empathy for others means to “walk in their shoes,” and that doesn’t mean buying the same shoes. It doesn’t mean “what you would do in their situation,” but rather trying to understand from their perspective why they do what they do.

We find that the most difficult part of having these types of conversations with prospective customers comes from the inability to succinctly describe the problems you hope to solve. It’s rather beyond us, however, how one hopes to solve a problem one can’t articulate.

Here are example problem statements that don’t get to the root of the real issue.

“We save enterprises money”: It’s true, businesses love a positive return on investment (ROI) when they purchase a product. But they don’t purchase a product in order to solve the problem of a lack of ROI. They purchase a product to solve a problem (perform a job). Positive ROI comes from a product doing the job well enough to make or save more money than the cost of the product, plus any number of other hard and soft cost factors, including switchover costs, brand risk, security, and so on.

“Better way to hang out with friends”: It’s true, friends like to hang out with each other. You might even say they are passionate about it, but they’re not looking for a cool, new wiz-bang mobile app to help them hang out more. They’re really not. The problem a mobile social app developer is solving is not the lack of a mobile app!

“Small businesses need to have a web presence”: It’s true, many small businesses don’t have an online presence. For many, it’s too hard or at least there’s a fear that it’s too hard. For some, it may be too expensive, or at least there’s a fear it’s too expensive. Only those fooled by hype desire a web presence for the sake of having a web presence. If you are merely solving the problem of needing to have a web presence, you’re not solving a real business need. Why do they need a web presence? Is a web presence actually the best way to solve the need?

To truly understand a problem, you should not initially propose a solution. Otherwise, the reaction you get will be to the solution and not whether the problem exists.

Getting Customers to Talk

Assuming for a moment that you are able to articulate your customers’ problem assumptions, a conversation might begin like this:

Hello, I am [your name], and I’m researching the [your industry] market. When speaking with [target customers], I often hear they face difficulties with [problem1/problem2/problem3]. Do any of these sound familiar to you?

Example:

Hello, I am Brant Cooper, and I’m researching business startups. When I speak to startup founders, I often hear that they find it difficult to know who exactly their customers are, how to validate product ideas, and how to communicate with customers. Do these sound familiar to you?

Let’s unpack this a bit. The conversation is not about you, though people will want to know who you are. Get that out of the way quickly by introducing yourself and giving a very general description of why you’re talking to them. As quickly as you can, flip the conversation to be about the person with whom you’re speaking. To do this, briefly describe one to three problems you think resonate with them. Then, ask them if they have experienced those problems.

What are the worst possible outcomes?

• They tell you to go away: So go away; they are either not a potential customer or not friendly.

• One or more of your problem statements are incorrect: What a great opportunity to learn!

• They understand your statements as accurate, but personally don’t believe they apply to them: Great! Still an opportunity to learn. How did they overcome these obstacles? What problems are they facing?

Either you’re talking to the wrong person or you stand to learn a lot. If you’re talking to the wrong person, you still have an opportunity to learn. Ask if they know anyone who has faced the problems. Try to discern why you thought they would be the right person to talk to, but they actually turned out to be wrong. There is something about them that will help you tighten your market segment definition and help form a list of questions you can use to qualify future leads.

You can’t learn this stuff from thinking harder or “just doing it.” You have to go meet them. What’s the worst that can happen to you? Someone slams a door in your face? Hangs up on you?

Of course, they could laugh at you. That would be pretty bad.

Case Study: What’s the Worst That Can Happen?

SimpleEnergy is a TechStars company seeking to help homeowners reduce energy consumption and save money with the help of a wireless thermostat. Much to their credit, SimpleEnergy didn’t spend a lot of time and money building out a line of wireless thermostats from the get-go, but rather created several mockups.

Founder Yoav Lurie:

It was a simple thermostat; all it had was an up and a down button and a little screen. But the beauty of it was it was connected through Wi-Fi to your router and then you would be able to control it through your iPhone or your iPad and we’d provide the ability for any other developer to build an entire ecosystem around our products.

They built several mockups, playing with the design, how it would look in various houses, various interior designs, and so on. The idea was to have energy utility companies distribute the thermostat to their customers. After hustling to land meetings with several prominent utility executives, they got an awkward reception:

We took this thermostat to them and they literally laughed at us. We could not understand why they laughed at us, because we really thought this was brilliant. Then they pulled out of a drawer this beautiful $500 thermostat. They said, “We have to pay a door-to-door salesman $60 per lead for every household they convince to take one for free.”

After two similar experiences, one with an industry regulator, they knew they had a problem. “The regulator helped us get that the problem is not with the tools to help consumers, but that people don’t care.”

Even in the worst possible scenario, there’s learning to be had. The episode didn’t spell doom for the company; rather they had to look at the problem from a different angle. The founders stuck with their vision of helping consumers reduce energy use, but how?

If SimpleEnergy were to ask consumers straight up, “Would you like to save money on your electric bill?” The likely response would be a near unanimous “Yes!” Who doesn’t want to save money? If they had asked, “Would you like to reduce energy consumption?” Again, most consumers would view that as a positive. We would hazard a guess that even if asked in a survey, “Would you like a new thermostat for free?” most people would say yes.

Unfortunately, this exchange would have a tenuous relationship with reality. The real question is this: “Would you significantly change your behavior in order to incrementally save money and reduce energy consumption?” When confronted by a sales representative at the door with an offer for a free thermostat, that reality comes barreling home.

“What for?” the homeowner asks.

“Well, it connects to your Wi-Fi and you can monitor your energy use with your iPhone.”

“Oh, please!” [Slam!]

The point is that how you interact with potential customers is critical to learning. In this instance, one can validate the need: Consumers would like to lower energy bills, and some consumers would like to reduce energy consumption. It’s difficult, however, to validate the solution proposal with any degree of confidence. Consumers are not great at predicting whether they would be willing to change behavior, nor, if they were asked to come up with their own solutions, would they likely come up with innovative ideas.

The innovation is up to the entrepreneurs. The utilities had all the tools necessary to allow consumers to track their energy consumption, but still, the consumers didn’t care enough to use them.

“We went out looking for someone who would help us figure out how to get people to care,” said Lurie. “So we tracked down Dan Ariely,⁷ who has written two New York Times best-sellers on why people act irrationally and how you get them to do what you want. We pivoted from being a thermostat-building company to a social gaming company. We credit Dan for helping us design the underlying game mechanics that drive much of our application.”

Validate your idea in two stages:

Things you should learn about your customers’ problem through interacting with them:

• Top—one to three pains or passions within the context of your product/solution proposal.

• How people deal with pains today and why the existing workarounds/solutions fall short.

• What is the cost of the problem?

• How deeply held is the pain or passion?

• What is the primary obstacle to converting? Why would users decide not to buy?

• What is the customers’ practice when buying other related (or semirelated, not necessarily competitive) products? In other words, how do customers expect to be marketed and sold to?

Things you should learn about your proposed solution after validating the problem through interacting with customers:

• Do your customers view your solution ideas as belonging to a new market? In other words, can they instantly compare it to other solutions out there? (If so, not a new market.)

• Do your customers currently have the necessary environment to successfully include your product into their existing work flow or their daily life?

• Can they envision your product existing in their life and, if so, under what conditions?

• Would they pay $1 for it? $1 million?

Case Study: A Nonprofit Lean Startup

We feel strongly that the challenges of innovation in uncertainty are felt not only by business startups, but by innovators in the nonprofit world, too. Rob Emrich, founder of multiple startups, shared with us his story about how he successfully iterated his nonprofit and how his vision evolved as he “got out of the building.”

Lean Entrepreneur: What’s the name of your nonprofit?

Rob Emrich: Roadoflife.org is our website; it’s the name of our program. The actual nonprofit is called the Keren Emrich Foundation. We provide health-education curricula to schools and teachers.

LE: How did you get started?

Emrich: When I was a lot younger I had a sister who passed away from cancer. She had a nonpreventable type of cancer called neuroblastoma. I was a real young kid when she died but it affected me profoundly. As I was older, in my last year of college, I had a cousin who died of a brain tumor and my mom had a breast cancer scare and my aunts had breast cancer.

So when I was a senior in college I decided I wanted to do something to make a real difference in the fight against cancer and raise a lot money for that cause.

LE: What did you do first?

Emrich: The first thing we did was what would be called “getting out of the building,” the equivalent of customer development in startups. We specifically made appointments with the head of the cancer division at the Ohio Department of Health, who was extremely helpful to us along the way.

What we found out really quickly—and it would have been easy to just be stubborn and go out and raise money—but we found out there’s not really a problem.

LE: Classic. In what way?

Emrich: I mean, there could always be more money that goes to cancer research but even if we were tremendously successful and we raised $50 million for cancer research, that is a drop in the bucket on a year-to-year basis compared to what the federal government puts into cancer research, let alone all the other charitable foundations combined. We had no way that would have made us any better at giving away the money we raised.

LE: So you got out of the building and the feedback was, “Hey guys, we appreciate your enthusiasm,” but, then, “Here’s the bigger picture. Here’s how the ecosystem works. Money is not really the big problem for us.”

Emrich: The people at the Ohio Department of Health made it really clear the problem isn’t research and you’re also not in a very good position to make any significant difference in research, whether through money or ideas or better allocation of funds or whatever.

A lot of times you actually can get in the way; people who donate money get in the way because they donate to the wrong things that really don’t have that much promise. They told us the really big issue out there is prevention and specifically, prevention for children. A large percentage of all cancer deaths are preventable, through really simple things like eating better, not smoking, and exercising more. There’s also a massive epidemic of childhood obesity, diabetes, and other diseases of excess. We ended up latching on to that a lot more.

What we found out is that there’s a really big challenge in prevention and specifically when it came to children because by the time you’re an adult it’s harder to change your behavior.

Our next step was to start to investigate that as much possible. We found out that there are actually quite a few curriculums that were out there—some from the American Cancer Society, some from other tobacco-prevention programs—but just look at the outcomes.

There are still a lot of obese kids and that’s a near-term indicator for a long-term problem. Why isn’t this working?

LE: You actively looked at outcomes and thought, “Look, current methods don’t seem to be working.” So you actually took a sort of skeptical approach rather than just execute a good idea?

Emrich: Right, and as soon as we realized we needed to work with kids, we wanted to find out what was happening in the classrooms, so we actually started talking to teachers. That was like another example of us “getting out of the building.”

LE: How many teachers did you talk to?

Emrich: We went to dozens of teacher conferences. I would say we probably talked to 50 teachers during the course of the initial development. What we found out is some of them had been given these curriculums, but this is a critical point: They were never actually using them.

We couldn’t figure out why they weren’t using them, because we knew they had them. We would go into the classroom and we’d see a curriculum from the American Heart Association sitting on the shelf.

LE: How did the American Heart Association get the curriculum to the teachers?

Emrich: Usually they got a grant that put them into the schools. There are a lot of people that can say yes or no, so usually a district will make a decision, and this is an important point about how complicated getting a product into the nonprofit sector can be. A district can say no to a curriculum, a school principal can say no, or a teacher can say no.

What we decided to do, based on knowing how many levels of no’s we could get, was to just avoid going to the two levels that could’ve given us a no, and we went right to the teachers who could give us a yes or no answer.

LE: And this is based on your time spent with talking to teachers.

Emrich: Yes, about how curriculum gets into classrooms, how they even are allowed to teach certain things. How they choose what they teach.

What we found out is that it is very individualized. Although the district believes they have a really specific set of standards, for the most part teachers did what they wanted and they were evaluated based on the tests that students take at the end of the year. We realized, after talking with so many teachers, that the reason they weren’t actually teaching the other curriculum that were out there was because they didn’t have time during the day and because they had an enormous amount of pressure to teach these academic concept standards.

This is a really critical thing; other nonprofits had probably talked to teachers, but they’d come in with a preconceived notion that they had to have a peer-reviewed program that’s been used in small cohort studies and demonstrated to be successful and then go in and give that to teachers. It’s hard for teachers to do a 50-lesson approach, however, so all the other curriculums that had been built, it was either you do all 50 of these lessons or you don’t do any.

We knew that that was completely unrealistic. So immediately we made a decision to sacrifice what’s called program fidelity versus adoption.

LE: What does that mean exactly?

Emrich: Like how often a teacher actually completes a lesson or how well the program is actually followed to the letter.

LE: So you find out about the teachers’ pains. How they do their jobs every day. Then you say, “Okay, we want to do something. Something is better than nothing so we’ll sacrifice some fidelity in order to get adoption.” Is that sort of the thought process with that?

Emrich: That was one of the thought processes and the other is: We’re going to go directly to teachers to get an up or down answer from them right away. So we started to put stuff in front of them and say, “Is this enough?” What we found out was it was difficult to teach what we were putting out there because it wasn’t aligned to the academic content standards. So, at the time—and this is different now—but at the time every single state had their own academic content standards. It was part of the No Child Left Behind act passed by Congress to begin the process of standardizing what’s taught in schools.

So no teacher actually had time to teach any lessons during the day, because they only had to teach what was in the academic content standards and what was going to be in the test at the end of the year.

So our big insight was that we took our lessons and transformed them to align to the academic content standards for both national health education standards and math. This was like our big innovation that actually helped make our program much more successful.

This was a pivot that I think was critical. So instead of just teaching a kid about health we would talk to them about their body mass index (BMI), based on teaching them a lesson on long division. For all the things we wanted to teach we found out where it could correspond to something that students already had to learn, and then we taught health in the context of the academic content standards.

LE: Why do you think that hadn’t happened before?

Emrich: I think no one actually got out of the building and talked to teachers and observed teaching in the classroom. I think the programs were designed by doctors who were much more interested in building small cohort studies that could be peer reviewed, would demonstrate that the programs work in a vacuum. When a teacher is forced to actually teach all those lessons, it works very well.

Once we had built the program, it was online and any teacher could use it, it still wasn’t being used much and we didn’t understand why. So we got back out of the building and they kept telling us, “Well, I like to have a book in my classroom.” We’re always reading about these new smart whiteboards that are in all the classrooms. It turns out teachers didn’t really know how to use them yet.

LE: So there’s this supposed technological innovation, these smart blackboards . . .

Emrich: And computers . . .

LE: And yet the adoption wasn’t very high; people actually weren’t using them. They were actually telling you, “Look, we want a physical paper book.”

Emrich: Right. So they actually wanted to be able to tear the pages out of a workbook, photocopy them so they could give them to the kids, because that’s what they’re used to doing. They go through a lesson plan that they probably developed at home after hours or over the summer. They make photocopies on the copy machine at the school and for some of them it was, “We don’t have a printer, but we do have this copy machine.”

LE: So this was after you had already created all the online content?

Emrich: Right. We did that in conjunction with teachers. Then we aligned it to all the state academic content standards and changed the nature of all the lessons. Then we found out that we still were missing part of the story: Younger teachers were teaching our curriculum because they were using this technology; they had been taught how to use it and were using it.

LE: So you guys had aligned the contents to the academic standards, you guys built an online platform, and younger teachers thought, “That’s pretty cool.” They were using it.

Emrich: Right, but the more experienced teachers, which make up the vast majority of teachers, weren’t.

LE: At that point was it actual conscious testing?

Emrich: There were two types of experiments that were running. One, about the actual changes that our curriculum produced, like what knowledge, attitudes, and behaviors had changed with the kids, and we did that with pre- and post-tests. So that was one level of testing, that to be relevant on a long-term basis, we had to demonstrate that what we were doing mattered.

The other thing was just in terms of: How do we get more teachers to do this? That was the usability testing we did. That’s how we found out that older teachers were uncomfortable using a laptop in the classroom or a computer. It just didn’t make sense for them. So through surveys and talking to teachers directly at conferences, they would say, “I want it printed out,” and we would say to them, “It’s so easy to print out. This format automatically creates a PDF from the Wiki. We spent a lot of money using this technology; just print it yourself.”

LE: Their response?

Emrich: They didn’t do it. We thought they were going to do it but they didn’t. We didn’t see our adoption rates go up. They didn’t have printers, or they didn’t know how to use them, or they were just not comfortable doing it that way. We eventually listened to them and printed our own version through Lulu.

LE: You guys printed your own book through Lulu, the online self-publishing service.

Emrich: Right, and we had school districts buy it. So state governments and school districts bought our curriculum. We had teachers download the curriculum and then we asked them, “Would you be more likely to teach this if you had a physical copy?” Almost all of them, 99 percent of them had said yes. So what we would do is match them up to a funder who was willing to pay for the paper curriculum and in that way, we became completely self-sustainable. So, this is significant; our program wasn’t paid by donations anymore. It was paid either from the school district or a teacher or anyone who wanted our curriculum, and they actually paid us for it. We stopped asking for donations. I mean we still got significant donations from Microsoft, from Aetna, from Dannon, from big companies, and the federal government, but we stopped asking.

LE: Being able to have the freedom to not ask for donations, how did that affect you guys?

Emrich: It allowed us to completely focus on delivering a better curriculum that would be used by more teachers, rather than creating this narrative about “all the great things our nonprofit is doing” in order to get more funding. That’s normally the paradigm. Every nonprofit tells a story and they come up with things that sound like facts about what they’re doing, like, “This is how many people slept in our homeless shelter during the course of the year. This is how many meals we actually fed to people.”

LE: Because they have different problems and it’s not just a smaller version of a big company.

Emrich: That’s probably one of the biggest problems. When you’re trying to make a change, there’s a whole bunch of people who are just telling you what big nonprofits have to do with these already. They’re not telling you don’t worry about this now, when you get bigger you can worry about it. All they’re saying is that you need to have the following checks and balances and you spend all your time working on administration.

LE: Why don’t you give me some vanity metrics for fun, actually? How many downloads? How much curriculum has been distributed? What are the big numbers?

Emrich: For us we looked at the amount of curriculum we distributed and the University of Maryland Business School did a study for us. This is specifically so that we could create a social ROI analysis of how much each curriculum was worth to each child. So we took all of our kids and multiplied them by this number that they came up with for us and that’s how we get our $70 million of curriculum distributed, and over 250,000 kids have used our program.

Work to Do

1. From Chapter 3, you hopefully have a few market segments defined, with corresponding problem statements. From Chapter 4, you have documented assumptions from the five parts of your value stream:

• Growth engine

• Minimum viable product

• Conversion

• Funnel

• Acquisition channel

Now’s the time to figure out how to validate your assumptions.

You can use one template for each interviewee:

Segment:
Interviewee:
Assumption	Hypothesis	Result
Persona exists/details correct:
Customer has problem/pain/passion:
Customer will respond to solution (high level):
Customer will be satisfied with specific functionality x, y, z:
Customer will become passionate when:
Customer will make final decision to buy when:
Customer will trust the company when:
Customer will trust the product when:
Customer will want to learn more when:
Customer will become aware of the product by:

2. All this data does not come from one interview, but, rather, it is collected over time as you form a deep relationship with your customer.

Notes

1. www.entrepreneur.com/article/222501.

2. By the way, in case you just thought of Henry Ford and his observation that “If I had asked people what they wanted, they would have said faster horses,” that’s not exactly what he said. But he did think along those lines. Read the whole thing here: http://blogs.hbr.org/cs/2011/08/henry_ford_never_said_the_fast.html.

3. We owe a great debt of gratitiude to Clayton Chrisensen and his must-read tome, The Innovator’s Dilemma (Harvard Business Review Press, 1997).

4. Taleb, xviii.

5. Liker, 229.

6. www.fastcodesign.com/1669070/3-ways-to-predict-what-consumers-want-before-they-know-it.

7. www.zurb.com/article/588/hiding-in-the-bushes-with-steve-jobs and www.nytimes.com/2011/01/19/technology/companies/19innovate.html?_r=1.

8. Ariely’s Predictably Irrational (Harper Perennial, 2010) is a fantastic book. If you haven’t read it, we suggest you do so soon.