Saturday, March 05, 2011

Nail it Before You Scale It – Take Two

Following my post urging startups to nail it before they scale it, I have had a few interesting conversations on the topic with some of the top marketing and sales minds in the business.

While money is always a constraint for a startup, time can be even scarcer. With that in mind, there is a compelling reason to quickly scale things up to the point where you can validate the market attractiveness of your solution.

This is a strategy that Starbucks has perfected. They keep introducing new products, quickly trimming the ones that don’t do well, and introducing new ones to take their place.

The key to this strategy is the ability to measure success, and quickly. It’s ideal for SaaS solutions, but can be applied with some variations also to on-premise software.

Here are seven ingredients you need to make it happen.

  1. Know what success looks like. As David Skok says in his blog post, the one thing your business will live or die by is your customer acquisition model: who are you targeting, how many of them are there, what will it take you to reach them (in cost and time), what is your expected conversion rate for each stage in the funnel, what is your expected revenue per customer, etc. The model will tell you whether you can make money and how long it will take until you do. The goal of this exercise is to validate the model or revise it based on the data you gather.

  2. Work on a large enough sample. Validating your customer acquisition model is difficult when the model is based on closing two deals a year (no matter how big they are), making it a risky business model. You can still measure conversion at the top of the funnel, but it will not validate the entire model.

  3. Target the right people. If you are targeting the CFO but never get to talk with a CFO, that’s a clear sign of a problematic customer acquisition model. You can’t hope that this problem will just go away. You need to figure out a way to reach the buyer and build the cost and the time it takes into your model.

  4. Separate the product from the pitch. You want to be able to isolate problems with the product from those that have to do with how you pitch it. To do that, you may want to try different variations on the pitch. You can also learn a lot by asking potential buyers why they don’t like your offer enough to buy it now.

  5. Let buyers test drive. There is no better way to give buyers a real idea of the value of your solution, and there is no better way to tell whether they really like it or not (i.e. enough to buy now and convert from a free trial to paid service).

  6. Real-time measurement. The point is to get many ideas tried out in a short timeframe, until you find the one that works. If you have to wait weeks before you see how well things work out (or not) for each idea, you end up spending too much time on each failed path and too little time on new (and potentially better) ideas.

  7. Trust the data. Don’t let wishful thinking get in the way. If your data tells you only one out of ten people will take your offer, this is the number you need to plug into your customer acquisition model. Yes, you should find a way to get more people to respond, but don’t count on it.

I would like to thank Gil Rapaport and Amit Bendov for their invaluable contribution to this post.

And as always, I am curious to know what you think.

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