Startup Marketing Blog – By Sean Ellis

The Startup Pyramid

Every six months I rethink the optimal startup go to market approach based on new insights gained at recent startups. Lately I’ve been using a pyramid to represent the process I’m using. Startups require a solid foundation of product/market fit before progressing up the pyramid and scaling the business.

Achieving Product/Market Fit

Product/market fit has always been a fairly abstract concept making it difficult to know when you have actually achieved it. Yet many entrepreneurs have highlighted the importance of creating a product that resonates with the target market:

• Paul Graham: The mantra at Paul’s successful startup incubator YCombinator is “make things people want.”
• Steve Blank: In Steve’s book Four Steps to the Epiphany he writes: “Customer Validation proves that you have found a set of customers and a market who react positively to the product: By relieving those customers of some of their money.”
• Marc Andreesen: A couple years ago Marc wrote the following on his blog: “…the life of any startup can be divided into two parts – before product/market fit and after product/market fit.”  He goes on to write: “When you are BPMF, focus obsessively on getting to product/market fit.  Do whatever is required to get to product/market fit. Including changing out people, rewriting your product, moving into a different market, telling customers no when you don’t want to, telling customers yes when you don’t want to, raising that fourth round of highly dilutive venture capital — whatever is required.” 

I’ve tried to make the concept less abstract by offering a specific metric for determining product/market fit. I ask existing users of a product how they would feel if they could no longer use the product. In my experience, achieving product/market fit requires at least 40% of users saying they would be “very disappointed” without your product. Admittedly this threshold is a bit arbitrary, but I defined it after comparing results across nearly 100 startups. Those that struggle for traction are always under 40%, while most that gain strong traction exceed 40%. Of course progressing beyond “early traction” requires that these users represent a large enough target market to build an interesting business.

You should measure your product/market fit as soon as possible because it will significantly impact how you operate your startup. If you haven’t reached product/market fit yet it is critical to keep your burn low and focus all resources on improving the percentage of users that say they would be very disappointed without your product. Avoid bringing in VPs of Marketing and Sales to try to solve the problem. They will only add to your burn and likely won’t be any better than you at solving the problem. Instead, you (the founders) should engage existing and target users to learn how to make your product a “must have.” Sometimes it is as simple as highlighting a more compelling attribute of your product – but often it requires significant product revisions or possibly even hitting the restart button on your vision.  For more on getting to product/market fit, I recommend reading Marc Andreesen’s full post via archive.org (it has been removed from his blog).

Race up the Pyramid

Once you have achieved product/market fit, it’s time to accelerate through the next steps of the pyramid and then begin scaling your business. Here’s a brief description of what to do at each of the steps before scaling:

• Promise: Highlight the benefits described by your “must have” users (those that say they would be very disappointed without your product).
• Economics: Implement the business model that allows you to profitably acquire the most users.
• Optimize: Streamline a repeatable, scalable customer acquisition process by testing multiple approaches and tracking to improve the right metrics.

Effectively executing these pre-scale steps often improves the conversion rate to transactions by 5X or more. This directly boosts the effectiveness of every future marketing initiative by the same proportion. Just don’t rush into this fine-tuning phase until you have first achieved product/market fit.

I recommend reading this post on Milestones to Startup Success for additional details.

Posted in Business models, Positioning, Product/market fit, Steven Blank, The Four Steps to the Epiphany, Y Combinator
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Free Customer Development Help – Survey.io

I’m excited to announce a project that I’ve been working on with KISSmetrics called Survey.io, which provides startups with a free and easy way to prepare, distribute and analyze an initial customer development survey. It includes the content of the survey I use to verify that a startup is ready for the 12in6 Metrics Driven Customer Development Program (which begins at the validation step in Steve Blank’s Four Steps to the Epiphany). 

Determine if you are ready to scale

For startups, this survey is an ideal way for you to determine if you should begin the final preparations before aggressively scaling customer acquisition.  Some VCs have also started using Survey.io as part of their diligence before making Series B investments – so don’t be surprised if a VC asks you for your Survey.io results.

The most important question for determining how well your product is resonating with early users is question 2:

2) How would you feel if you could no longer use [product]?

• Very disappointed
• Somewhat disappointed
• Not disappointed (it isn’t really that useful)
• N/A – I no longer use [product]

If most of your respondents are saying that they would only be “somewhat disappointed” without your product, they are really telling you that it is only a “nice to have”.  When asking users why they selected this answer, I often find that they are focused on commodity aspects of the product and they know of a replacement product.  It’s very difficult to build a business around a “nice to have” product, so you should keep burn and customer flow low while you iterate your core experience. 

If however, you find that around 50% or more of your users are saying that they would be “very disappointed” without your product, there is a great chance you can build a successful business on this “must have” product.  This is the time to reallocate some development resources to optimizing first time user flows and building the tracking/reporting systems needed to effectively scale customer acquisition initiatives. 

Survey.io to develop value proposition

The survey also provides some useful early feedback for verifying use cases, developing your value proposition and positioning against the most common alternative solutions.  This feedback is directionally useful, but I recommend significantly more research (via customer surveys and interviews) before finalizing your value proposition and positioning.

I strongly encourage you to setup and run your own customer development survey via Survey.io.  It only takes a few minutes and it free.  Here’s the link again.

And here’s a link to my customer development survey for Startup-Marketing.com .  I’d really appreciate it if you could take the time to complete it.  This will help me tailor the content of this blog to better meet your needs.

Posted in 12in6, 12in6 Methodology, Acquiring Customers, Competitors, Customer Development, Research, Steven Blank, The Four Steps to the Epiphany, VC
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Keys to Unlocking Startup Growth

When a startup takes VC funds, they usually accept the premise that they need to “get big fast”.  VCs don’t fund lifestyle businesses.

Unfortunately desire for growth causes many startups to make poor choices.  There are generally two opposite mindsets that lead to the same mistakes:

1. Overconfidence: “We have lots of money, so let’s move fast (no need to be cautious).”
2. Panic: “We are running out of money, so let’s move fast (get traction before we run out).”

For an entrepreneur focused on growth, it seems natural that they should “get the word out” about their new innovative solution. Thus many startups quickly launch awareness building initiatives ranging from advertisements in a tech magazine to exhibiting at tradeshows.   Generally this is a complete waste of money.

While experienced marketers recognize the need for some positioning work upfront, they still generally lack a broader understanding of where to focus resources and in which order. 

The first time I saw an effective go to market roadmap was when I read Steve Blank’s Four Steps to the Epiphany.  His roadmap consists of the following four steps:

1. Customer discovery
2. Customer validation
3. Customer creation
4. Scale company

He warns that a company should not kick into growth mode until reaching the fourth step.  By this point they have figured out a sustainable and scalable process for acquiring and monetizing customers.  If you haven’t read the book, I highly recommend it.  For a more detailed overview of the book see this post from Eric Ries.

The approach I’ve used to attract 10s of millions of users to startups is similar, but allows growth a little earlier (click graphic below for full size).  

 
Within a few weeks of initiating the understand phase, we generally have enough user insight to baseline allowable acquisition costs of a new user and begin iterating.  It can be tempting to start building all customer acquisition channels that fall within this allowable acquisition cost, but finding and managing these channels takes too much time to already be a priority.  Instead, we just want to generate enough new user volume to iterate landing pages and sign up flows.  These iterations can increase the allowable acquisition cost by more than 10X in only a few months. 

At the completion of the iteration phase we can put all of our energy into building profitable customer acquisition channels.  With a much higher allowable acquisition cost, the process of building profitable channels is relatively easy (and even fun).  I recommend starting with free channels first and ultimately spending up to your allowable acquisition cost.  This recent post gives more details on building these channels.

Posted in Acquiring Customers, Customer Development, Steven Blank, The Four Steps to the Epiphany
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Fast Vs Careful Decision Making in Startups

Reversible or Irreversible Decision?

Fast decision making is often the mark of a great entrepreneur.  But as Steve Blank points out in a recent blog post: decisions have two states: “those that are reversible and those that are irreversible.”  Entrepreneurs should take the time to make careful decisions when they are irreversible (such as accepting money from a VC).  For reversible decisions, he recommends starting “a policy of making reversible decisions … before a meeting ends. In a startup it doesn’t matter if you’re 100% right 100% of the time. What matters is having forward momentum and a tight fact-based feedback loop (i.e. Customer Development) to help you quickly recognize and reverse any incorrect decisions.” 

This is awesome guidance considering the countless hours I saw wasted at my first startup where people debated decisions that had little impact on results.  On my marketing team I quickly ended these debates with “test it.”  When debates extended across departments I abdicated the decision to others but measured the results to make sure they weren’t negatively affected.

Higher Velocity Testing Better than Perfect Certainty

At LogMeIn (my second startup) the goal was to start a testing and analytics culture on the marketing team right from the beginning.  Rather than hiring someone with a traditional marketing background, my first marketing hire had an actuarial background (the people that assess insurance risk).  Next we hired a super fast web designer/developer and an equally fast copywriter.  This team was able to rapidly iterate everything to determine combinations that generated optimal conversions. 

One warning before hiring a math wizard to lead your analytics is that they will often want sample sizes that almost completely eliminate doubt that you are making the right decision.  With the volume of users at most startups, this would limit you to very few tests.  When I suggest the following mental exercise to a mathematician, they usually come around to high velocity testing with lower certainty.   I suggest that they try modeling the results of 25 tests with 80% certainty compared to 5 tests with 95% certainty.  I also explain that we can always go back and test it again when we have higher volume.

Understanding User Motivations

But some decisions are a lot harder to test and require more up front traditional research.  For example, when trying to understand the motivations behind users’ actions (or lack of actions) I generally interview and/or survey them. But as Robert Cialdini points out in his latest book: “We know that people’s ability to understand the factors that affect their behavior is surprisingly poor.”  So in the past, this research often confused rather than enlightened me. 

It wasn’t until I read Four Steps to the Epiphany that I realized you could take a more scientific approach to understanding user motivations.  Steve Blank recommends starting with hypotheses around the key factors that will be important for building your business – such as the real problem you are solving and the people who are most motivated to solve this problem.  By engaging prospective and actual users you can validate and/or refine these hypotheses.  Unlike the previous approach to surveying, we now gain clarity with more user input. 

Still I know there is a lot of room for improvement in my scientific approach to understanding user needs and motivations, so I recently brought on someone to help me take my research and analytics to the next level.  He is Molecular Biologist as well as an entrepreneur who earlier in his career spent 10 years in biotech research.  It should be interesting to see what happens when he applies his rigorous research approach to customer development.  He’ll be joining me for my two projects that start next month.

At early stage web startups we have the distinct advantage over established companies of starting with a blank slate, making it possible to set up much more controlled experiments.  In addition to making better use of tight startup time and money, we also hope to leverage the blank slate to challenge some long held marketing beliefs regarding what really works.

Posted in Analytics, Customer Development, Research, Steven Blank, The Four Steps to the Epiphany
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Iterating Without Understanding?

It seems there are two camps of “evolved” marketers these days. One group recognizes that it is critical to understand customer needs by engaging them at every opportunity. The other group is completely focused on metrics driven iteration. Until recently, few combined these powerful forces.

I started in the camp of online metrics and scorned the beanbag marketers who didn’t “get” analytics. At Uproar in the mid to late 90s, metrics were our competitive advantage. We tested, measured and optimized everything. We knew we couldn’t afford any waste if we were going to have a chance to beat the heavily funded Silicon Valley gaming startups and the established companies getting into online games (Microsoft, Yahoo, Sony). Ultimately, this obsession with leveraging metrics to track ROI and improve conversion through iteration was key to becoming the worldwide leader in online games and peaking at a billion dollar stock market valuation. Despite their much deeper cash war chests, the beanbag marketers couldn’t compete with our no waste metrics driven approach.

Today the Darwinian economy has killed off most web businesses that don’t leverage metrics, so this is no longer a competitive advantage – it’s a necessity. But many web marketers stop there.

In my next startup I was fortunate enough to have a venture capitalist who helped take our approach to the next level. We attracted his investment with our metrics driven online marketing approach and then he quickly improved it. He constantly grilled me with the question “Who is your customer?” During our weekly meetings he never failed to ask about the last time I spoke to a customer. I got extra brownie points for meeting with customers in person. To be honest I initially focused on engaging customers just to appease this VC. But it didn’t take long until I was able to use this information to improve results. Informed iteration helped us increase purchase transaction rates 10X in just a few months, which made scaling a profitable marketing spend infinitely easier. Later customer engagements uncovered revenue opportunities we never could have found through metrics driven iteration. These revenue opportunities eventually accounted for more than half of the company’s overall revenue volume – making possible the eventual IPO filing.

It wasn’t until I began the Interim VP Marketing role at Xobni that I discovered Steve Blank’s The Four Steps to the Epiphany. This book added a systematic process for uncovering the critical information needed to build a thriving business and keep improving results.  The great news is that Steve Blank recently started blogging at steveblank.com. Perhaps even better news is that Venture Hacks now records Steve Blank’s lectures at UC Berkeley and posts them online.

The same Darwinian forces that made metrics a necessity for online marketers are once again shaking up the web startup world. It has become a major competitive advantage to combine Steve Blank’s customer development approach with informed metrics driven iteration. And it’s only a matter of time until this approach becomes a necessity for survival.

So what’s next? I’m certain that eventually a platform will emerge that ties it all together. This platform will facilitate the process of collecting and analyzing actionable customer information and manage the iterations that deliver optimal results. Up to this point we’ve always had to custom develop these tracking and reporting systems, while using disconnected systems to drive understanding (surveys, Excel…). Off-the-shelf analytics programs have been bloated with data that is useless for improving results.

Rather than holding my breath for someone to deliver this dream platform, I’ve been advising KISSmetrics as they work to create it. I’ve given them total visibility into my approach and turned over reports that have evolved over many years of execution. Of course they have given me equity in the company – but I’d be passionate about this metrics driven customer development platform either way.

Posted in Analytics, Customer Development, KISSmetrics, Metrics Driven Marketing, Steven Blank, The Four Steps to the Epiphany
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Startup Theory VS Reality

In addition to recently starting two new customer development projects, I’ve also been busy prepping for my guest lecture in Steve Blank’s Customer Development course at Haas (UC Berkeley business school).  The lecture was Tuesday night.  One of my key objectives was to help the students understand that everything seems intuitive and easy in the classroom, but in the heat of execution you quickly get overwhelmed.  A single board member demanding quick growth can easily push you from a logical sequence of figuring things out to desperately throwing money at potential growth drivers.  Anyone who thinks it’s going to be easy is in for a big surprise. 

This blog shares the objective of grounding entrepreneurs is reality.  Most entrepreneurs (especially first timers) are unrealistically optimistic.  If they logically thought about the risks, they probably wouldn’t be starting a company in the first place.  The chances of failure far outweigh the chances of success.  But everyone thinks they are the exception to the rule – and some actually are…

I’m often disappointed that I don’t have more time to update this blog.  I guess if I did have a lot of time to update the blog, it would be full of impractical theory that isn’t grounded in reality.  Real entrepreneurs (not the armchair wannabe entrepreneurs) would quickly recognize it as an exercise in mental masturbation.  But I understand that the infrequency of my posts causes some readers to forget about it.   So rather than risk the impression that I’ve given up on the Blog, I’m going to try to start posting on a regular schedule – a new post every Monday. Fortunately the majority of my readers don’t have time to read several posts per week.  They are busy growing their own startups, etc.

Posted in Steven Blank, The Four Steps to the Epiphany, Uncategorized
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Eric Ries on The Four Steps to the Epiphany

I often recommend The Four Steps to the Epiphany as the best book available on taking a new startup to market.  However I’ve never captured the essence of the book as well as Eric Reis did in his blog post this weekend.  In addition to a great summary, he also relates the book back to his own experiences and provides practical guidance for applying the books lessons.  If you don’t have time to read the book, at least read Eric’s post.

Posted in Steven Blank, The Four Steps to the Epiphany
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The Best Way to Get Your Startup to Market

Among all the uncertainties startups face, perhaps none is bigger than trying to figure out their go to market strategy.  Should they shell out big bucks and equity to a veteran marketer with domain and startup experience?  Should they take a conservative evolutionary approach or hit the market hard with millions in marketing spending?  Are there some key tasks to execute before aggressively acquiring the first customers?  With all the alternative ways to go to market, it’s no surprise that startups are constantly second guessing their go to market approach and/or their marketing leader.

Over the last few weeks I’ve refined my plans for helping startups address these challenges.  This is mostly based on feedback from several startup founders and VCs, but it’s also based on the time I had to reflect while on vacation.

To recap my “journey” to date, I recently finished a six-month interim VP marketing role at Xobni, which publicly launched its product in May of this year.  Xobni is considered by many to be among the hottest startups in Silicon Valley.  I am now a marketing advisor with Xobni. I limited the fulltime role to six months because of my belief that the first six months of marketing are the most critical to long term success of a startup.  I came to this conclusion following two previous startup roles where I ran marketing for several years from launch to NASDAQ IPO filing. 

It’s important to note that the most important marketing drivers were different in each of my last three startup marketing roles.  It was the process of discovering the most effective drivers that was the same, as well as the steps executed before developing drivers.

While at Xobni I also read “The Four Steps to the Epiphany” which supported my belief that there are patterns that most successful startups follow.  The author, Steve Blank, also reached this conclusion as the founder, CEO or head of marketing at several successful startups. 

As I mentioned in my last post, I plan to use a more leveraged approach with startups going forward.  Each startup must have a passionate, talented marketer in the marketing leadership position and recently raised their series A round of VC financing.  My role will be to help them focus their time and resources on the most impactful projects necessary to bring their company to market.  Because of my previous experience successfully navigating this critical stage, they will have the confidence (both self confidence and from other execs and board members) to aggressively execute an efficient go to market strategy, without most of the second guessing that so often wastes time and energy at startups.

The key development since my last post is that I’ve formalized two specific programs for bringing these companies to market (at different price points). The goal is to concentrate my efforts in the areas where I can add the most value in the least amount of time.  Both programs start with 2-3 days of intensive onsite progress assessment and planning.  Essentially we assess everything that has happened in marketing to date and plan the sequence of what needs to happen over the next six months.  Then we’ll review/refine the execution plans for each of the key projects for the next six months and consider external resources where needed.  Finally we’ll schedule weekly phone calls to monitor progress and help with key challenges.  The higher level plan will also include unlimited email Q&A.

Over the past several weeks I’ve been introduced to about 25 startups (primarily via VCs) that have the right profile.  Clearly this is a niche with a lot more need than I’m capable of meeting. Still, I believe my new approach will enable me to effectively work with up to two new companies per month (initially I’ll cap it at one per month). By limiting myself to companies that are at a very specific stage, I will be able to constantly refine and improve the approach.  Again, I’m focusing on startups that have recently raised their series A funding and have a talented/passionate fulltime marketing leader.  These companies should seek the right balance of conservative and aggressive execution.  It’s very easy to get too aggressive too soon when you have just raised millions of dollars.  But eventually you must be aggressive to realize your full potential. 

You may have noticed that some of my old posts are no longer available on my blog.  Because I view my service as a key competitive advantage for the startups I work with, I’ve decided not to provide this information for free to their competitors through my blog.  This was a difficult decision and hopefully my readers will understand.  I will still post general information about marketing a startup on my blog as well as assessments of effective drivers, but will no longer include detailed posts on process.  I may offer some webcasts in the future where it is easier to control the dissemination of information.   For anyone who is looking for specific reading materials on process, I highly recommend Four Steps to the Epiphany.  My approach incorporates some key element from this book, but obviously there are other things I’ve discovered through my own experience that aren’t covered in the book. 

I’m excited to start with this new leveraged approach at Eventbrite on Monday.

Posted in Steven Blank, The Four Steps to the Epiphany, Xobni
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