Customer Validation: Going from Idea to Sellable Product
“A value hypothesis is an attempt to articulate the key assumption that underlies why a customer is likely to use your product. Identifying a compelling value hypothesis is what I call finding product/market fit. A value hypothesis identifies the features you need to build, the audience that’s likely to care, and the business model required to entice a customer to buy your product. Companies often go through many iterations before they find product/market fit, if they ever do.” -Andy Rachleff
A startup's lifecycle can be grouped into two phases: pre-product/market fit and post-product/market fit. When your startup is pre-PMF, your singular focus is getting to PMF. But what exactly does that road from seed to PMF look like?
We sat down with Spiros Xanthos, founder of Omnition, to walk through what he identified as “the five phases from seed to product market fit” and the process he used to take his company Omnition from idea to acquisition in less than 18 months. It’s worth disclaiming that there is no one right route to product market fit. We captured Spiros’ experience and learnings to help founders navigate what is often the toughest leg of the entrepreneurial journey: going from an idea to a sales ready product. For each of the five phases, there is one primary goal and different objectives across customer conversations, product, and team.
Phase 1: Confirm the Market Opportunity
In this first phase, the primary goal is to understand if a real market pain exists. If you’re going to spend the next five to seven years building something, you want to be as sure as possible that a real market opportunity exists. If you’re still employed at another company, this is when you might quit your job and set off on your journey.
Customer Conversation Status - For the first few months, your goals should be to talk to 20-30 customers. A good place to start is with people in your network who work in the general space you’re thinking about addressing. You might ask, “What are the problems you face everyday?” “What environment do you work in?” and “What are the common problems in that environment?” What you’re listening for in these conversations is the convergence of the problems you’re hearing. In other words, your product idea has to be consistent with the problems you’re hearing from multiple customers before you build anything.
Product - At this point, your product is nothing more than an idea. Spiros notes that every time he built product features off of pure speculation, it ended up being a waste of time.
Team - The team in the first phase is just the co-founders. You can use the notes coming out of Phase 1 customer conversations to help recruit the rest of your team.
Phase 2: Initial Outreach and Early Product Design
This phase is what Spiros likes to call “Interview Plus”. It’s the phase where your customer conversations shift from unstructured conversations to more targeted feedback sessions. The goal is to understand the customer’s specific high priority problems and test initial mockups.
Customer Conversation Status - By Phase 2, you’ve probably tapped out your personal network and need to reach out to 40-50 additional prospects. (See our Outreach Playbook below for specific outreach tactics.) Your team must agree to a process for collecting, sharing, and analyzing customer feedback. Your customer conversations should have already converged and you’ve confirmed there is a real problem. You probably have some understanding of the common tech stack your customers are working with and a general sense of common problems, but have some remaining open questions. Spiros notes that one way to double-check your assumptions is to draft an internal business plan with the 30-50 questions you still don’t have answers to. Some questions may become irrelevant, but others may become critical to your business.
Product - You might have initial mockups and simple workflows to show in these conversations, but no built product.
Team - An early key hire is a UI/UX engineer who can help you design an early product that reflects the customer feedback you’re capturing.
Phase 3: Quick Product Iteration
By Phase 3, you’ve spoken to what feels like countless customers and gathered detailed, meaningful feedback. Your goal now is to confirm your understanding of your customer’s major problems and design a solution. Rapid iteration is critical to make sure that what the initial workflows you build accurately captures and solves the customer pain you’ve heard in earlier conversations.
Customer Conversation Status - Your aim should be to drive conversations to design partner status. One tactic Spiros used to close design partners was offering a 50% discount if they onboarded within the year.
Product - You’ve iterated quickly to build out initial workflows you can show in meetings to help close design partners.
Team - Hiring another engineer to help with development might make sense to help speed up iteration.
Phase 4: Confirm Design Partners and Launch 1.0
In Phase 4, your goal is to work with your top three design partners to make sure that the full product you’re building meets their needs and is usable in their environments.
Customer Conversation Status - By this point, you should have answers to the 30-50 open questions you drafted in Phase 2.
Product - Working with your top three design partners, you should build a demo product you can show and start selling in customer meetings. Continue iterating and validating the early product.
Team - This is when you might consider hiring an SDR (sales development representative) to help scale outreach.
Phase 5: Sell to Early Adopters
The fifth phase before PMF is all about accelerating your company’s growth. The focus is no longer on validation, but on selling. The goal is to create a repeatable sales process with evangelical supporters of your solution. (A customer reference is something you have to arm twist to get; an evangelist is someone you can’t get off the phone.)
Customer Conversation Status - By this point, you should be following a structured sales process with identified decision makers, buyers, and influencers. The focus should be on helping champions navigate buying your software and expanding the pipeline. Scaling and finetuning outreach through marketing should be an additional priority.
Product - You have a working 1.0 product with delighted reference customers.
Team - This would be the time to bring on additional Engineering, Product, and Marketing hires to round out the team.
With a full team, early signs of traction, and a working product, raising Series A funding might also be an appealing option to help accelerate growth, but not before those fundamental milestones are achieved. As Steve Blank put it,
“Founders need to ask themselves the hard questions: Have we identified a problem a customer wants solved? Does our product solve these customer needs? If so, do we have a viable and profitable business model? Have we learned enough to go out and consistently sell the product? Are the sales and business plans realistic, scalable, and achievable?”
Founders on their way to PMF work to find those answers as they progress through each phase of the journey. Through extensive customer feedback and quick iteration, they are able to fill in more of the blank space and build something that customers need and are willing to pay for.
Don’t waste time building things on speculation. Instead, validate the problem with the customer first and show them early designs to confirm it’s what customers want before building.
Use the customer outreach process to disqualify customers and understand the core problem you’re solving. This means being much more disciplined in asking questions where you might not like the answer. This helps you to arrive at the right insights and eliminate prospects who aren’t the right fit.
One of the founders needs to spend the majority of their time selling and recruiting. As a founder, you need to learn how to sell as an expert, but also how to actually close deals.