Note: This post is the third part of the larger essay about reducing the cost to sustainability when developing a new product. To read from the beginning click HERE to start with ‘Defining Product/Market Fit’.
This post is not about a new methodology on developing a product. The idea of “How” to get product/market fit, I believe, is best described by Steve Blank’s insights from the brilliant ‘The Startup Owner’s Manual’. This methodology is excellent in minimising risk and increasing the efficiency of the process:
Step 1. Customer Discovery – Identify the market and create an MVP (Initial product)
Step 2. Customer Validation – Build and improve initial product using customer feedback from chosen market (create product able to scale)
In this post I am going to use the same method of modelling the product/market resonance, as described in defining product/market fit to visualise the journey as explained by Steve. I see this as a four stage journey, on the assumption of no pivots, to efficiently build a start-up from scratch:
Stage 1. THE IDEA
Eureka! The business is started with an idea… The idea is inevitably not perfect for the market and, with this low resonance, is represented as:
It is clear from this graph that if the founders decided to scale the business then it would be a very expensive effort. A mistake the likes of WebVan did in the dot.com bubble. At this stage the founding team should instead start to identify the market through initial customer discovery. This allows the creation of an Minimum Viable Product (MVP).
Stage 2. Launching an MVP.
The first iteration of the idea has been developed from the small amount of customer development. This is much better placed for the market but still too expensive to scale yet. This is represented as:
Stage 3. Iterating till CCM>CPA
Bingo! After ‘x’ number of iterations, during the customer validation stage, the example business manages to achieve an average CCM>CPA. This is not product/market fit as, for the purposes of this example, the potential Gross Customer Profit is still less than administrative costs. This does not mean the business shouldn’t still pursue scaling even though it cannot become sustainable. Every customer acquired below the profit growth ceiling (intersect between CCM and CPA), reduces the overall losses and also speeds up the speed of iteration allowing the product to be optimised faster.
Stage 4. Iterating further; achieve Product/Market Fit
Through increasingly intensive customer validation as the business increases the number of customers the business can iterate to achieve Product/Market Fit. At this stage, every possible resource should be made available to scale the business to sustainability and is finally represented as:
This is when the potential GCP is greater than administrative costs and is the last stage of the ideal start-up product development journey. Understanding this will allow for greater understanding of the the last part of this essay “Reducing the Cost of Scale – The Planned Pivot”. NEXT PART: The Product Formula
This post is part of a larger essay about reducing the cost to sustainability when developing a new product. Total parts are:
- Defining Product Market Fit
- The Reality of Marketing
- The Ideal Startup Product Development Journey
- The Product Formula
- Reduce the Cost of Scaling – The Planned Pivot