The hidden startup sales strategy in Steve Blanks ‘Four Steps to the Epiphany’
‘Four steps to the Epiphany’ is a treasure chest for the budding startup entrepreneur. Created by Steve Blank, it has acquired the star status in business strategy, and it has released a wave of new ideas in strategy, for innovative SMEs, with new business models, etc. Its pervasiveness and persistence, since the 2005 release of the eponymous book, are proof of its inherent value.
At the core of the method is the intuition of two parallel tracks that every company must follow during its early existence:
- the Product Development track and
- the Customer Development track.
Blank observes how management science (as well as folklore) are chock-a-block full of knowledge in product development but fail to even notice the necessity of developing the customer base of the business, resulting in a strategic imbalance as dangerous as an arch resting only on one pillar.
Blank shares his vision and describes its translation into tangible steps. While currently conducting a thorough analysis of the book, I realized that, among other things, he describes a convincing sales strategy with tactical implementation that suits very young companies well.
To set up a proper context, I will assume that you have just today incorporated your startup company that will manufacture and sell the Product. In the accompanying comic strip, we’ll be following the tale of Jeff, “salesman” of ACME Mousetraps, an innovative startup being launched now.
* A caveat: although Steve Blank writes with exceptional clarity, he is fervently fond of the word “customer” and calls customers even vaguely interested prospects who might never buy from the company. Should you read the book, please cautiously reflect upon this and deduct the correct meaning from the context: does the word “customer” refer to a) a suspect, b) a prospect, or c) a real, money-paying customer? In this article I will try to use the appropriate term. For simplicity’s sake in this article I will refer as “Product” anything your freshly-minted company will sell, including services.
Let’s start with an overview.
1 – Explore the problem
Steve Blank’s hidden sales strategy starts with your first goal: achieving the expert status in knowledge of your (future) customers’ problem(s).
The goal translates into three tactical objectives:
- Naming and describing the problem that causes pain to your target prospects;
- Acquiring a deep as possible understanding of the problem, of its workings, magnitude, footprint, and of its consequences and victims;
- Working and communicating to acquire the “expert” status in the domain(s) of the problem.
To achieve the goal, you must set up a learning process, in which you formulate hypotheses about the problem, test them with your audience, collect feedback, process it, and impart all necessary changes to your hypotheses.
2 – Challenge the solution
As you have now acquired acknowledge expertise on a specific problem you want to solve through your existing or future Product, you must now evolve your Product to become, in the opinion of sufferers, the desirable solution and cure for the problem.
Similarly to the first step, here too you will set up a learning process (this time by formulating hypotheses about the problem and your solution, by testing them with a new audience, by collecting feedback, by processing it and by imparting all necessary changes).
3 – The Holy Grail
At the end of the second step, you will be in the likely position of pre-selling your Product, with the additional help of your long-term vision. What are you selling now? And how will you evolve your Product?
The first sales will go to people who have adhered to your understanding of the problem, who acknowledged your Product is/will be a tremendously valuable cure of the problem, and who are eager to see your Vision unfold and become reality.
And now let’s see this points into practice:
INTO PRACTICE: 1 – Explore the problem
The very beginning starts with a desk effort in trying to describe what you know – or think you know – of the problem. In parallel, you will try to capture all your ideas on the (future) Product you intend to develop and sell. You will need to do a similar effort in describing future customers you imagine will buy the Product to solve their problem. In other words, you will endeavor to understand what problem your Product will solve, and how so. To do this, you need to acquire and accumulate info and knowledge on the problem you want to solve, on people and organizations ailing under it, on sectors and domains stricken by it. This may be done with desk research work and probably a lot of web searching.
In this task, you will assemble a presentation that describes the best problem description you can think of, from the point of view of those people you will want to help with your Product. This presentation is called the “Problem Presentation”, and with it you seek to build your expert profile without ever claiming your “expert” status, from the point of view of your future customers. What, in their eyes, is the problem? Is it a “meaningful” (read: painful, costly, stubborn) problem? Does your understanding of the problem contain such valuable insights that it is only justice to refer to you as “the expert on the problem”? Note that your Problem presentation cannot contain any self-promotional message. Refrain from trying to “sell” to your audience. The Problem presentation will hit the bull’s eye if it arouses the interest of the audience for a future as yet undefined solution we will call the Product – a solution you could one day perhaps deliver?
Feedback collection tool
Next to the Problem presentation you will need to design a “feedback collection tool”. In the first task – the hypotheses collection with a lot of desk research – you gathered your thoughts on the problem you want to solve, with your future Product, to the benefit of your future customers. The Problem presentation will also be the testing ground for your hypotheses. During the presentation you will be able to assess how well you had the problem framed in the way your future customers see it. You therefore need to capture that information. Perhaps a notepad with a reminder list of things to check will do the trick? Whatever its form and shape, you will need something to record how your Problem presentation was perceived and understood, and what feedback.
Define your audience
Let’s summarize how far you are into your effort: in the desk research effort here above you have identified potential “problem owners” inside companies. You can pinpoint their roles within their organizations, and you should be able to put yourself in their shoes and to imagine their plight without your Product. You are now in the position to pick ten people to meet and to show them the Problem presentation.
Circles of prospects
The way Steve Blank wants you to sell at the beginning of your venture is through a gradual enrichment of your target audience thanks to communication to your prospects while moving from one group of prospects to the next one. Let’s say you have gathered your ideas on assumptions on what problems you will be solving with whatever Product your business will sell, and for whom. From these assumptions you should be able to scope your target audience – remember, they are not yet customers, but you can probably already guess some things about them. This desk research effort should yield names of companies and people, and you should be able to pick a fair number of prospects. For the sake of this example, let’s say 10. Write them down in a list. You are now in the position to work the phone (or email, or SMS, etc.) and contact these 10 people. Because this is usually not the easiest thing to do, a good tactic seems to be asking for a bit of their time (say, 20 minutes to present to them the problem you want to solve), while promising them, in return for their favor, a summary of your findings once your 10 interviews are done.
The first Problem Presentation and the Feedback Tool
This presentation focuses exclusively on presenting, within the pledged time frame, the problem(s) your prospects face – and how you understand them. This is called – quite obviously – the “Problem Presentation”. With it, you present the knowledge you have in, and understanding of, the Problem your company will solve for its future customers. It should be regrouped in a presentation commensurate with a first meeting – this should be no PhD dissertation. Also, the presentation is no excuse to try to sell anything – except demonstrating your proactive drive to expertise in the Problem.
Why explicitly trying to sell at this point would be catastrophic? At this stage you still don’t know if the Problem that you aim to solve exists as such, what importance it might have for your target audience, and if in general how you and your audience see it matches. A misdirected sales presentation will make those hard-earned prospects suffer patiently through 20 minutes of fallacious glory, then escort you to the door and basta.
Whatever reactions your presentation will elicit from the audience, you will learn a lot on that Problem. Go to the presentation armed with a specific “feedback collection tool” (a checklist? a grid of questions? a voice recorder?), to help you capture new knowledge. You should build the feedback tool on the basis of the assumptions and reasoning on the topic of the Problem you believe the prospects endure – remember? If you followed the directions here above you described them – because you want to test the hypotheses you laid down at the beginning.
Do the rest of the Problem presentations
You are now ready to deliver your stand-up routine. Obtain an appointment with each one of the 10 prospects. Then give your presentation and record reactions from your audience (use your feedback collection tool). Remember not to try to sell anything. If the presentation goes well, you could even consider asking for the favor of being invited back, this time to meet a higher hierarchical level of the prospect.
The first learning phase
You are now ready to review and process the accumulated feedback. What should you look for? Pain? What pain?
Start answering key questions on the pain you hope to solve, like:
- Is this real pain? For whom is it? For whom not?
- Did you discover the existence of new segments of “Problem owners”?
There are more questions to ask yourself:
- What were the biggest surprises during the Problem presentations?
- And the biggest disappointments?
- “Are you aware?”
It’s also the right time to explore the degree of awareness your audience has of the Problem.
Perhaps you met people who have the Problem but are not aware of it? This is not an unusual condition. Maybe you are a visionary entrepreneur and are addressing a problem that very few people even acknowledge. Think of the situation you would be in if you were setting up a social network with a usage fee and guarantees of privacy and confidentiality. How many of your contacts, currently active in leading networks like Facebook, would consider transitioning to your solution? Of course part of the general public has grown a certain degree of awareness over the last few months, but you would still be confronted with many people who would not even think there is a Problem with their privacy inside free social networks.
Steve Blank defines an extremely interesting pain awareness scale, which goes from a low point of “people having the Problem but not being aware of it”, to a high point of “people aware of the Problem and its consequences, having already explored standard solutions and being frustrated by their inability in solving the Problem, and having a Budget to spend on solving the Problem”.
He also points at the common mistake of salespeople aiming straight at “potential customers” who have, and are aware of the Problem, and who are actively looking for a solution.
Why trying to sell your Product to them would be a mistake?
The vast majority of people are pragmatists. If they have a Problem they will first look for an existing solution. An existing solution has the merits of being available and of having a track record, against which they can reflect on the return on investment they will make once they will solve the Problem. Your Product does not therefore qualify for their effort as a) you are busy shape-shifting it while inventing it b) it isn’t ready yet c) it has no track record, and therefore a pragmatist is not able to assess its value.
Steve Blank circumscribes your future potential customers to a subset of these pragmatists, by asking you to focus on people who, having all the characteristics here above, have already tried standard solutions and have been disappointed by them. These Problem owners – and only these – are the people most likely to listen to you and to consider with an open mind your future Product.
Better feedback – the workflow map exercise
Draw a workflow (flowchart) of how the “Problem owners” currently do their job, and who they interact with, under duress from the Problem. Double-check the map to be certain of its accuracy. Do this with enough detail until you can explain at the whiteboard how they live and work today, how they spend their time, their money, etc.
Then draw a workflow describing how they would work, and interact, if they suddenly had your Product and did not have to toil under the Problem.
Compare both maps and highlight all the points where your Product makes (will make) a difference. These differences hold the value your Product will bring to Customers. You must be certain of them … because your whole venture rests upon their collective value.
What did you learn so far?
At this point you have acquired a wealth of new knowledge. Firstly, you have a much sharper understanding of the Problem. You can now describe it from the point of view of people you will want to win over as customers. You master the right vocabulary. You understand the footprint of the Problem’s impact.
From this knowledge area you can now go back to your Product idea and assess how well (or not) its concept addresses the Problem. What changes do you need to effect to make it stick to the Problem? You also understand how your future customers would prioritize features. A completely new order of importance of features might emerge from your presentations.
And, how would that newly-shaped Product be developed and released? Feature changes might affect the development and roll-out calendar – you need to figure out the new calendar before proceeding with your plans.
Reflecting upon all this, you should now be able to assess how your company is positioned in the business arena.
Life in a new market
This is the case for all Products that reach to customers’ needs in such a way that they are unique. Maybe there are products and services that cater to similar needs, but not to the same profile of needs. Your Product could be unique. It will serve new users in a market without comparable products – maybe a few substitutes.
A contrario this is the case of all Products that serve known needs profiles already addressed by other products. Your Product could be different because…
- It will have better features?
- It will offer better performance?
- It will be sold through a better channel?
- It will feature a better price?
- Or else?
Capture the Difference
Now you should be able to describe why, and on what points, your Product will be different. Going from a radically new product (serving needs in a unique way, in a new market without comparable products) to more subdued degrees of innovation (better features, performance, channel, prices, etc), you should be able to provide a convincing and factual explanation.
Obviously, the spillover effect of the knowledge you amassed with your Problem presentations has a greater reach inside your organization than what is explained here. For the sake of simplicity, we will jump ahead in the process and assume that you have been to effect all necessary changes inside your organization.
You are therefore ready to dive into the Problem + Solution presentation.
INTO PRACTICE: 2 – Challenge the solution
The goal of the second step still is to position you as the expert on the Problem you want to solve, but this time as the person / organization holding the key to the Solution. This goal translates into the objective of pre-selling your vision: a world freed of the Problem thanks to your future Product, which will deliver the Solution to your Customers.
Problem presentation update
Take the first Problem presentation and review it thoroughly. With your new knowledge you now know how to design a Problem presentation that hits the bull’s eye. Thus update your Problem presentation and shorten it down to around 10 minutes.
Now create the Solution presentation, which will be the second part to the Problem presentation. In this presentation, you will refrain from detailing the Product but will describe the Solution at conceptual level. In fact, your Product features are probably not wholly defined yet, and that’s perfectly acceptable at this stage. “One day, we will deliver the Solution to the Problem, and it should be …, act like …, impact …, integrate … etc.” The Solution presentation will be a high-level concept description of the principles of your future Product. Resist the urge of pressuring your audience into pre-ordering your Product at this time.
The Solution presentation should last the same time as the Problem presentation. If you need 10 minutes to go through the Problem, you should constrain the Solution presentation to the same amount of time. There will be Questions & Answers time afterwards, especially around the rich feedback collection process.
By bundling together the Problem and the Solution presentations you obtain the “Problem + Solution presentation”, which will be at the core of the second step.
Define the second circle
As with the first audience, identify people and organizations that might benefit from the Product. You will want to address a larger group of people this time – perhaps another 10 Problem owners if you can, plus the Problem owners from the previous round of interviews who were nice to you and told you they were interested in what you had to say – and, as with your first search, collect their contact details, links, recommendations etc.
Call the second circle
When you will contact your second round of Problem owners, you will ask them the favor of a bit of their time to listen to your presentation, perhaps by promising them in return to e.g. becoming “Mentors” to monitor the progress of the company and of your Product along the development lifecycle. Clearly state that you are not selling anything to them but are instead asking for a bit of their time.
Carefully select those people you will want to invite to the Board of Mentors: you will need those who will buy the Product and who will give you the best insights in how to bring the Product to the markets.
Monitor your calling efforts
Factoring in due margin for travel time, try to obtain three meetings per day with your second circle. Also, try to keep track of which sales pitches got better results. How should you introduce yourself? What is the quickest way around obstacles like office assistants? Etc.
A strong feedback collection tool
It’s time to redesign your feedback collection tool from ground up. The tool central to harvesting the full value of your second round of contacts, and it will yield incredibly valuable information to you, including the most likely end-customer selling price of the Product.
Within the available time frame of the “Problem + Solution presentation” and its Q&A, your feedback collection tool should capture info on:
- Your solution: does it solve a meaningful problem? Does it look like a good solution?
- Your positioning: how different will your solution be?
- Major Pain with their current Problem
- Organizational impact of the Problem: who/what does it affect? In the company?
- Where in that organization is the budget for buying your product?
- Product Pricing: here comes the magic wand for spotting the right price, or at least something not too far off. Use the magic question “if I gave the Product to you (for free)… would you use it?”. If your audience says that even for free they would not take it right now, drop them, they are useless to your cause and will probably never buy from you. Then ask them: “If it were to cost one million euro, would you buy it?” People will usually say something like “one million euro? Are you crazy? This thing shouldn’t cost more than …. [aha! Here is the price figure you were looking for]”.
- Ask about the potential size and costs of installation and customization services. This will refine budget and pricing figures. Go on by asking: “Would you spend that amount on our Product every year?”
- Distribution alternatives: from which channel would they most likely buy?
- Customer’s acquisition alternatives – where are you most likely to find people like them?
- “Whole Product” requirements capture. With these questions you want to understand the whole product requirements, as in the eye of the future customer.
- Customer product acquisition process. Discover how they and their company purchase such Products, its approval process, who discovers new products, etc.
- Channel-distribution related information. If you are planning to sell through channels, it’s probably too early to try to hammer a deal with channels BUT you may want to understand what it would take to get an order from Channels. Channel partners very often don’t know how to price or position your product, hence asking them is fruitless, and asking directly to end-customers about price and position invaluable. Spend some time helping channel partners understand how your Product should be priced and positioned.
Lessons to learn
The second round of “Problem + Solution” presentations will yield tremendously useful information in defining the Minimum Viable Product and most of the business setup you need to know to get started. By now you will have realized the broad impact the far-reaching feedback collection will create, as you will reflect the new knowledge on previous hypotheses. For example, how (well) do your preliminary Product features solve customer problems? This will give you a natural ranking of features and developments, and help you re-review the list of features and its release schedule. You will now be able to prioritize the feature list in terms of importance to the future customers. You will also begin to put dates to an up to two-year forward-looking release schedule.
INTO PRACTICE: 3 – The Holy Grail is here
With a bit of luck, your interviews will have let you uncover the most valuable kind of prospects, i.e. people who are willing to buy your Product and who have told you how to sell it to them. This ring of people will be the first generation of buyers and users of the Product. Having the right number of them (neither too few nor too many) is the key in achieving sufficient lift force during your business take-off phase.
Thanks to www.comiker.com for comic strip support.
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