Monday, August 13, 2012

Defining the "Smallest Unit of Value"

In my last post, I talked about "the smallest unit of value" as an approach to defining an initial (or new) product offering that will lead to early success.  I defined it as,
"...the smallest unit of value you can deliver to a segment of users/customers that is consistent with the broader vision you are trying to execute."
I espouse this approach because it enables startups to focus their development resources and their marketing messages, both critical elements when trying to gain initial market traction.  But how does an organization find their smallest unit of value?  This post will lay out a framework to answer that question.

Start with your vision.  When a startup is initially formed, its founders usually have an understanding of the technology they want to build and how it will change the world.  This can be considered the vision of the company.

Develop a list of "must have" needs your vision addresses.  When developing this list, it is important to be critical and just include "must have" needs, not "nice to have" ones.  Developing this list typically involves performing some market research; ideally, a mixture of qualitative interviews and quantitative surveys.

Develop at least one positioning statement for each of the "must have" needs.  When developing positioning statements, I like to use the template presented in Geoffrey Moore's landmark marketing book, Crossing the Chasm:

  • For (target customers)
  • Who are dissatisfied with (the current market alternative)
  • Our product is a (new product category)
  • That provides (key problem-solving capability).
  • Unlike (the product alternative),
  • Our product (describe the key product features).

This step in the process requires some creativity because it is being done, ideally, before the product is designed or built.  It might make sense to develop more than one positioning statement for a particular need since there may be different approaches, from a product perspective, that can be taken to address a need.

Developing these positioning statements early in the process is important because it forces an organization to think about how they are going to talk about their offering, at a time when they have very few constraints.  Most often, positioning statements are developed after a product is designed and built, and they end up being less-than-ideal since they are constrained by the product that was built.

Eliminate positioning statements from the list.  Review the list of positioning statements critically, with the goal of reducing the number of statements.  Questions to ask as you review the statements include:

  • How easy/difficult is it to reach the target customer?
  • Is the product description easy to communicate in a few words?
  • Does the product category leverage any hot industry trends?
  • How noisy is the market for the product category?
  • How significant is the competitive differentiation?

Pick one positioning statement.  It can be very difficult to get the list of positioning statements to just one.  Sometimes, one statement will feel right and will jump out from the list.  More times than not, however, coming up with the final statement involves a "gut feel".  No matter the process, the important thing is to come up with just one statement.  As Joe Kraus says in his blog post, Your Product: Describe vs. Discover... need to divide your product into one (maximum two) features/benefits you describe and let the user discover the remaining beauty and scope and breadth of your product. 
The describe/discover framework, I’ve found, helps founders through the knothole of reductionism. They aren’t limiting the product in their minds, they’re limiting and staging how it’s presented. 
Before you launch your product, ideally before you even start developing your product, ask yourself the question, “what’s the one benefit we’re going to describe?” If you can’t answer that question, you’re not ready for launch. Once you answer it, orient your UI, marketing, PR and sales around that.

Start designing and building the product.  Now that you have your one positioning statement and have an understanding for critical elements, like the target customer, the "must have" need you are addressing, and how you want to describe your product, you will be amazed at how easy it is to design and build your product.  And later on, when you are ready to launch the product, much of the difficult positioning work has already been done and hopefully, you will just have to fine-tune your messages.

Sunday, July 01, 2012

Developing "Toys" for the Enterprise - It's About Delivering the "Smallest Unit of Value"

Today's TechCrunch post by Aaron Levie of Box - Rise Of The Enterprise "Toys" - and the recent acquisition of Yammer by Microsoft prompted me to dust the cobwebs off of my blog and write a post that I have been thinking about for years.

In his post, Levie talks about enterprise solutions that are initially viewed as "toys" and then they develop into "solutions".  As he puts it...
Students of the Innovator’s Dilemma know that a new technology starts out being just “good enough.” Often, an early solution only serves a niche part of the market with limited requirements. This naturally shields it from the incumbents’ radar, but what starts out as a nascent product attacking an unprofitable or unattractive market segment can quickly mature into a disruptive solution that becomes more than adequate for a broader population.
I completely agree with this approach and I often use - as Levie does in his post - Yammer as the poster child.  When they launched their initial offering in September 2008, they touted it as “Twitter for Companies”.  Many influencers viewed it as a "toy" and as this chart depicts, many of them didn't give Yammer much chance to succeed.  Two years later, they launched Yammer 2.0 as a “Full-Fledged Social Network for the Enterprise” and the industry started to take them a bit more seriously.  Now, after being around for less than four years, they are being acquired by Microsoft for $1.2 billion.  Not bad for a toy.

Throughout the years, as I have consulted for many early-stage enterprise startups, I have found that it is very difficult for many entrepreneurs, particularly those who have been in the enterprise space for a while, to think about developing a toy as they figure out how to penetrate the market.  They often go after the big solution from the onset and end up having a difficult time experiencing much success.  This happens for a variety of reasons.  Having the solution mindset often results in trying to build a broad offering, which is difficult when you have limited resources.  Also, communicating about a broad solution often diffuses the marketing message, which is not great these days when laser-focused messaging is critical to rising above the noise.

The approach I espouse to my early-stage clients is what I call, "delivering the smallest unit of value".  What is the smallest unit of value you can deliver to a segment of users/customers that is consistent with the broader vision you are trying to execute.  Having this type of narrow approach will enable you to focus your development resources and your marketing messages.  

I think it is important to note that taking a narrow approach initially does not take away from the ultimate vision of a company.  But a company that doesn't get started with a focused offering may never experience the early success they need to obtain the resources required to execute their long term vision.

What do you think of developing "toys" versus "solutions"?  What are some other good examples of startups that either succeeded by initially developing a toy, or did not succeed because they started with a solution?