Are You Building the Right Products?

Posted on Feb 19, 2013 | Posted by Jim Semick

A few weeks ago I was invited to speak at the Rincon Venture Partners Annual CEO Summit in Santa Barbara. I was fortunate to be there – it was an incredible group of startup founders, investors and executives. My talk outlined ways that software companies can evaluate which products and markets provide the greatest opportunity.

The fact is it’s tough to be successful with new products, even for mature software companies. The bulk of new product initiatives fail or sputter along with mediocre results.

Over the years of working with software startups as either an early employee or advisor, I’ve learned that getting products out the door is not typically the primary challenge. There are usually great development processes in place (Scrum for example) to build high quality products.

The real challenge: product teams and executives rarely have a process for evaluating the right things to build in the first place. Product teams need a process to evaluate market opportunities, reduce new product risk, and put the right things on the product roadmap.

Truly great product teams blend entrepreneurial instinct with evidence they’ve gathered from the market to make intelligent product decisions. They have first built a culture to ask the right questions and validate opportunities objectively. Here are a few characteristics I’ve seen that set the stage for building the right products:

  • A small, multi-disciplined team evaluates opportunities. The ideal team is eager to engage early with prospects, is problem-focused, and has an experimentation attitude. Teams include design and engineering specialists and occasionally have a member with a sales or marketing background.
  • They focus on problems first, product second. Great product teams deeply understand what the customer problem is before outlining the product and features. I’ve seen many companies launch the right technical product, but miss the mark because they haven’t understood the customer’s core problem.
  • They validate critical products and features. Ideally the product team is working three or more months ahead of engineering to validate new product initiatives including major features and partner integrations. Just as they would for a new business, they create a hypothesis and methodically test the minimum feature set, price, and acquisition model. Although back-of-the-envelope financials may be a part of the early discussions, there is greater emphasis on validating how well the product solves customer pain.
  • There is a focus on quality customer interactions rather than quantity. The best early insight comes from deep customer interviews. For example when I conducted the market validation for GoToMeeting (acquired by Citrix), our small team held in-depth interviews with 30 prospects to guide major decisions about the initial market, value proposition, product features, and pricing. Surveys, split-tests and other quantitative data supplement the deep customer insight.
  • They sell it early. These teams learn early whether they can presell customers using prototypes before investing in expensive engineering. They keep iterating and revising the pitch until they can consistently get positive signals that customers are willing to buy.

Product teams often have opportunities coming at them from many different directions, making it challenging to choose the right path. But companies can put in place processes at the “fuzzy front end” of product design that improve the odds of getting the right product on the roadmap and in the development pipeline.

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Guerrilla Validation: Test Your Product Idea in a Weekend

Posted on Nov 23, 2012 | Posted by Jim Semick

 

How can product teams and startups quickly validate new product ideas without spending a dime?

That concept got put to the test earlier this month at Startup Weekend Santa Barbara. If you’re not familiar with Startup Weekend, participants have 54 hours to develop a business model, get customer validation and start building a product.

On the first night of the event I spoke about how to find and talk with prospective customers. My talk, “Guerrilla Validation: How to Test Your Idea with Real Customers in 54 Hours” gave the teams tips and inspiration for testing their product ideas.

The core message was simple: Product teams and startups don’t need deep pockets, costly market research and weeks of time to get early evidence whether customers are likely to buy. The goal is to quickly document the problem and solution, and then get out of the building to test those assumptions to determine whether anyone cares about your product.

Even mature companies and product managers who are considering new product innovations can benefit from Guerrilla Validation. I talk regularly with product teams about techniques that require little more than the courage to pick up the phone, send an email, or speak to a few people at the coffee shop.

Over the weekend it was fun to watch the teams hustle to get validation any way they could: interviewing people at Home Depot, sending questions in email, or calling business contacts provided by mentors at the event. Several teams quickly gathered enough evidence to move ahead with an improved version of their product.

Whether you’re launching a startup or adding a new product to your business, a few low-cost validation techniques can give your team the confidence you need to get your product on the path to success.

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How to Brainstorm a New Business

Posted on Sep 16, 2012 | Posted by Jim Semick

 

How can startups and product organizations take a kernel of an idea and evolve it into a fleshed out business concept?

In this video I describe one of the processes I use to help teams think through the different elements of a successful business model. The goal is to get your business concept documented with just enough detail to validate with real customers and prospects.

While I like to use the business model canvas for brainstorming a new business, you can achieve much of the same result with Word, sticky notes, or even a large whiteboard. Here are the basic business elements to document:

  • The problem you are solving
  • The customer who has the problem (the more specific you are with the customer segment, the better)
  • The product’s primary features (a minimum product that solves the problem)
  • Why your product is better than others (and why the customer would care)
  • How you’ll reach your customer and sell to them
  • Price and or Revenue model

If you have the opportunity to work with a co-founder, team, or advisors during this process, the collaboration is invaluable. Plan at least four hours for the brainstorming. Give everyone an opportunity to write down and present their thoughts about each element of the business model. Then find common areas for discussion.

If you’re like me, ideas for new businesses or products cross my mind or come up in client conversations nearly every day. A handful are worthy of exploring further, and the video shows one way to get the concepts in a format that you can discuss with real customers.

You can learn more about developing business models in my online course at Udemy.com

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Why Customers Love Agile and Customer Development

Posted on Jul 25, 2012 | Posted by Jim Semick

 

Last week I conducted a webinar for a software company in Portland, Oregon. My talk, “Innovation through Customer Development,” discussed the benefits of combining agile software development (Scrum) with customer development.

The webinar was pretty uneventful, with one exception: In addition to the development team, the company asked several customers to attend the talk.

I think that’s awesome, and I applaud my client for wanting to give his customers insight into these processes. Too often, when discussing customer development and agile development, we tend to talk about the internal benefits such as getting faster to market, reducing waste, self-organizing teams, and so on.

But customers are the ones who get the most significant value out of these processes. I believe that combining agile and customer development as part of the product development process can create products that truly delight customers.

Through agile and customer development customers get:

  • Products they care about
  • Features that solve real problems
  • Features that are in line with expectations and priorities
  • Faster updates
  • Higher quality and easier to use software with less feature bloat
  • Quick action when mistakes are made

In addition, if your customers have have been co-creating or collaborating in your product development process they have more skin in the game. They will feel a closer connection to your product and company.

Perhaps it’s time to extoll the virtues of agile and customer development to customers as well. In the end, delighted customers and promoters of your product are what it’s all about, right?

 

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How to Price Your Product and Avoid Startup Pricing Mistakes

Posted on Jun 19, 2012 | Posted by Jim Semick

Over time I’ve developed a few philosophies for pricing products that I regularly pass on to startups and product managers. The central theme is the same: Validate the pricing and revenue model early in the product development cycle.

If you’re part of a lean startup and you’re getting your early MVP out to customers, you should test price with equal fervor as you test the UI.

I’ve seen startups get to launch before figuring out the pricing model (or worse, launching only to learn that customers weren’t willing to pay enough to support the business model).

Some of my thoughts are controversial. For example, I advise startups and new businesses to start charging customers as soon as possible, even if it’s during a Beta. Yet the standard is to give it away for free before launch. But by giving it away for free, you’re giving up an extremely valuable learning opportunity. If you decide to not charge customers during this period, at least do some trial closes (for example, if you have a business product, put a letter of intent in front of beta customers).

Here are a few more pricing mistakes I see companies make:

  • Pricing based on your costs rather than on customer value.
  • Pricing using the same structure as the competition.
  • Creating an overly complicated pricing scheme.
  • Believing that a lower price is always better.
  • Pricing so that lifetime value is lower than acquisition costs.

This is a lesson from my recent course Business Models and Pricing Strategies that outlines more of my pricing philosophies.

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Is Your Product’s Pricing Leaving Money on the Table?

Posted on Jun 9, 2012 | Posted by Jim Semick

Yesterday my new online video course Startup Business Models and Pricing went live at Udemy.com. I created the course because I regularly talk with startup founders and teams who are getting ready to launch and haven’t validated their pricing or business model. Oh, and Udemy also asked me to create the course, and I figured why not?

Much of the course is centered on a few core themes:

  • A solid business model is more than having a great product. It includes thorough validation of the right customer segment, acquisition method, sales channel, price, and other components.
  • Each component of your business model is interdependent. If you have a great product and sales channel, the model is weakened if you haven’t figured out how to cost-effectively identify and acquire the customers.
  • Validating the price of a product is more art than science, and it’s a critical part of your business model that can’t wait until right before launch. It relies on a combination of interviews to understand customer behavior as well as quantitative price testing.
  • Many of your assumptions about the business model may not be right. It’s only by engaging customers early that you can know whether you have a winner.

These core principles have worked well for me as I’ve helped companies develop business models that lead to successful products.

For the month of June, I’m offering my readers 50% off the course by using this coupon code.

The course covers these topics and more:

  • Successful business model examples
  • How to define and pivot your business and revenue model
  • Innovative revenue models for software and other products
  • Pricing mistakes and how to avoid them
  • How to test pricing with customers
  • Test selling business-to-business (B2B) products
  • Interviewing techniques that get the truth out of customers
  • Why customer lifetime value (LTV) is so critical

My hope is that a video course is more fun than a book and a whole lot less expensive that a consultant. I packed 10 years of experience into 14 separate lessons, so I think there is a lot value there that will save founders time and frustration. I’d love to hear your thoughts.

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What Makes a Great Startup Business Model?

Posted on Jun 1, 2012 | Posted by Jim Semick

What’s the ideal business model for a startup? I tried to answer that question as I’m developing my online course called Successful Business Models and Pricing Strategies. Here’s one of the 14 lessons with my thoughts about the characteristics of a great business model.

Background: I was asked to create an online course for the Founder’s track at Udemy.com around business models. The course has 14 video lessons, and I’ll do another post when it’s ready!

Update: The course is now available at www.udemy.com

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The Formula for a Winning Startup Business Model

Posted on May 17, 2012 | Posted by Jim Semick

Startups with successful business models get customer lifetime value (LTV) to be greater than the cost to acquire that customer (CAC).

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Startups: 5 Ways to Know if Your Sales Model Will Scale

Posted on May 15, 2012 | Posted by Jim Semick

This week I wrote a guest post for the team at SecureDocs about how startups know whether they are ready to invest in sales and acquisition. Some business models make it difficult to sell cost-effectively, yet I see startups pouring cash into sales at the first sign of revenue. In the article I outline five ways that successful startups know it’s time to scale:

1. The sales model is repeatable.

2. Customer Lifetime Value is greater than Customer Acquisition Cost.

3. Your team has climbed the Sales Learning Curve.

4. Revenue per sales employee makes sense.

5. You’ve nailed your core market.

You can read the whole article at the SecureDocs blog.

 

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What’s the Number One Cause of Startup Death?

Posted on Apr 18, 2012 | Posted by Jim Semick

Why do startups fail? I’ve been reading through the Startup Genome Project to understand the patterns of why some startups succeed while others crash and burn.

The project is based on data from over 3,200 high tech startups and describes the similarities of successful startups. It also describes common factors in startup failure or mediocrity.

The biggest cause of failure is moving too fast and scaling prematurely.

I’ve seen first-hand how companies fail by moving too fast through the first two early stages of the lifecycle: Discovery and Validation.

Startups on the path to failure move prematurely through the Discovery stage by starting to build a product without having validated the problem/solution fit. They start building a product that nobody wants.

In the Discovery phase, startups should be discovering real problems worth solving, not jumping ahead to validating and developing the solution. According to the Startup Genome Project, startups destined for failure typically will be writing more code and adding “nice to have” features.

Startups on the way to failure then move too fast through the next stage of Validation. They are more likely to be streamlining their overbuilt product and prematurely making their acquisition process more efficient. In a nutshell, they start executing on the irrelevant.

In the Validation phase, startups should be testing demand for a product. Can they actually sell what they are building in a repeatable way?

Through my years of doing Customer Development and product management for software products I’ve learned what the Startup Genome Project confirms: Startups need 2-3 times longer to validate their market than most founders expect.

But there’s often pressure from investors and others to move fast and scale. The best founders and executives moving in a disciplined way through the stages of the startup lifecycle. And that brings great dividends: According to the report, startups that scale properly grow about 20 times faster than startups that scale prematurely.

You can benchmark your startup against more than 10,000 Internet startups using the Startup Genome Compass.

 

 

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Can You Handle the Truth About Your New Product?

Posted on Apr 1, 2012 | Posted by Jim Semick

Optimism always runs high in startups and in product development teams. The entrepreneurial spirit keeps everyone focused and working hard to get to product launch. No one has time to consider failure.

Yet despite the stakes, I regularly talk with entrepreneurs who are developing (or have already launched!) a product without first talking to potential customers.

Last month I talked with someone who had launched a mobile app and wasn’t getting any downloads. He didn’t know why his product was failing. Yet he hadn’t talked with a single person who would be a potential user of his product. Not one.

Why is this?

I believe entrepreneurs have a dogged determination to win despite all odds. This is a great quality, but it can blind us and get in the way of knowing the truth. Perhaps it’s possible that some avoid interviews for fear of discovering that their idea, the darling they have been nurturing for months, wasn’t such a good idea to begin with.

The most successful founders and product leaders discover the truth early by getting out of the building to talk with customers. They know they need to validate their assumptions first. If they fail, they choose to fail fast and early.

Here are a few concepts I’ve learned that will make it easier to start talking with future customers today.

People love to help and they want you to succeed. This is my overarching belief, and one that holds true 98 percent of the time. I’m not an extrovert by nature nor do I have the boldness of a salesperson, so this philosophy makes it possible for me to pick up the phone, send that cold email, or talk with a complete stranger about products that don’t yet exist.

Keep in mind that this is a double-edge sword. Because people want to help, they may give you a false sense of the viability of your idea. In a future post I’ll outline a few techniques that can help you uncover what people really think about your concept.

As soon as you have something to test, get it in front of a potential customer. And by something, I mean anything. Whether you have a prototype or simply a bulleted list of questions in a presentation, show it. Don’t wait – it doesn’t need to be pretty. You don’t need to know all the answers. If you don’t have your act together, or your prototype looks like crap, that’s OK. You will learn something new with every interaction.

Think of it as a conversation. An “interview” brings to mind an uncomfortable, tense interaction. Meet for coffee or at some casual location. In advance of your conversation, learn a little bit about the customer (and their business if you are validating a B2B product) and ask them a few light questions. In fact, the first few minutes of your conversation should have nothing to do with your product-related questions. You want to learn about their life and business, and ask open-ended questions to uncover potential problems.

Start with friendlies. Your first discussions can be nerve-wracking, especially if you are not an extrovert. Get your feet wet by talking with a few people you know or who are second-degree contacts.

Ask your friends and LinkedIn connections if they know anyone that fits the description of your proposed customer. A warm introduction is also ideal for getting a call scheduled. If you are validating a B2B product for a niche market, this may be tougher, but you will be surprised at how large your network is.

Expect your first interviews to be tough. You will likely fumble through your questions. If you are validating a B2B product you may not speak the industry-lingo. Or your product pitch might be a mess. Don’t worry – people are forgiving. If you are an introvert, get a partner or advisor to tag along with you. They can help bridge awkward gaps and make the whole process more fun.

Trust me, after you’ve talked with 10 people about your concept it gets easier. And your learning will be exponential. You will hear the truth early, get the right product developed faster, and possibly find your first real customers.

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10 Tips for Amazing Customer Development Interviews (Part 2)

Posted on Mar 25, 2012 | Posted by Jim Semick

Whether you’re a startup or part of a larger product team, interviews with prospective customers are the best way to test your assumptions and identify problems worth solving. If you are actively developing a product and have yet to get out of the building to validate your assumptions, how do you know you’re on the right track?

In 10 Tips for Amazing Customer Development Interview (Part 1) I shared the first five ways to get the most insight from each conversation. Here are five more.

Tip 6. Tell them what their problems are. That’s right – you tell them. Present them with a list of problems you have heard from others (or problems you think they have). Your primary goal is to identify repeatable problems worth solving, and if your customer doesn’t share the problems on your list you may be on the wrong path.

Ask them if they agree or disagree with each item in your list and to add other problems they have experienced. If they agree with a problem, ask for specific examples. Then ask them to prioritize the top problems. If you can, find out the cost of the biggest problem (whether it’s lost time, lost money, lost opportunity, and so on). You can replay this insight later in the interview to help justify the return on investment for your product.

Tip 7. Ask difficult questions. Asking difficult questions may make you a bit uncomfortable, but will elicit insight you might not expect. For example, if the customer tells you what their biggest challenge is, ask: “How much is it worth to you if we solved that problem?”

Or if the interview isn’t going anywhere, take a cue from the theory of “reverse selling” and state “Based on what you’ve been saying our product doesn’t sound like a good fit for you – am I missing anything?” Of course all of this needs to be done with tact and stated in a nice way to avoid sounding like a jerk.

Tip 8. Ask if they’ll buy. This tip may not be relevant if you are in the early stages of customer discovery where you are attempting to identify problems. However, if you are further along in the process and have a product hypothesis, get this question on the table early – you do not need to have specific pricing to learn a lot. Ask something like “If this were available today would you buy it?” Then take a deep breath and let them talk through their rationale.

If they say, “yes,” here is where your job gets hard. My core principle is that people like to help. But that means they may give you answers you want to hear. So here is where Tip 5: Dig Deep comes into play: You need to ask them to justify their answer. Ask them “why.” Ask them how much they would pay. Ask them what their world looks like after they buy your product.

Challenge them (nicely) with your questions and you will gain a ton of insight – and a potential early customer. I have conducted a number of interviews where the prospect thought through the purchase process and were a probable buyer by the end of the discussion.

Tip 9. Ask for a referral. Over the years I’ve learned that my best source of prospects is through existing contacts. While cold-calling and other methods are great ways to test your acquisition model and sales funnel, the rate of success is much lower than a warm referral. At the end of the interview make sure to ask “Is there anyone else we should talk with?” or “Would you mind introducing us to a peer of yours at a different company?” If they are willing to make an introduction via email, offer to send them boilerplate text they can use when making the introduction – this will make it easier for them to follow through.

Tip 10. Leave on great terms. Don’t overstay your welcome, but know that people will give you time if you are respectful. Practice good time management. If you said you would spend 30 minutes, ask for permission to continue at the 30-minute mark. Chances are they will give you more time.

You want to leave on great terms, because at the end of the interview you want permission to contact them again when your hypothesis is further along. Oh, and follow up with a thank you email. That may seem obvious, but I’m always surprised at how many people don’t do this after an interview.

Customer development requires critical thinking and challenging all your assumptions. Great interviews with prospective customers are absolutely best way to have higher confidence your product is on the right track.

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10 Tips for Amazing Customer Development Interviews (Part 1)

Posted on Mar 22, 2012 | Posted by Jim Semick

When it comes to discovering and validating a great product, nothing is a substitute for hearing the good, bad, and ugly first-hand from potential customers. The interview is the most basic, core part of customer development, and is the best way to challenge your assumptions, validate your minimum viable product, and find early customers.

If you’ve done even a handful of customer development interviews, you know what a great interview feels like. The energy is high. There is synchronicity with the potential customer. Even if you don’t get to “yes” at the end of the interview, it can be a fantastic and rewarding experience because you have learned something new. That’s the point, right? You have gotten one step closer to validating your hypothesis.

After conducting over 1,000 interviews for startup products that did not yet exist I’ve developed a handful of techniques for getting the most insightful data out of your precious time with potential customers. Although most of my experience is with Web-based business software, many of these same concepts hold true with consumer software and other products. Here are the first five tips for conducting an amazing interview.

Tip 1: Interview the decision-maker. For consumer products, this is often straightforward. However, if you are pitching a proposed solution for a business, make sure you are talking with the person who writes the check or has significant influence over the decision. Sure, interviewing users is an essential part of development, but at this stage, you are trying to determine if someone has pain, which in turn leads to whether they will buy your product. If you are early in the customer discovery process and do not yet know who the buyer is, start with the person you think has the biggest problem, and ask them to walk you through the steps of a hypothetical purchase in their organization. They will lead you to the person with buying authority.

Tip 2: Prepare your questions – but don’t follow a script. This should be a conversation, not a structured interview. But since you are testing a hypothesis, be sure to write down the questions in advance so you know what to ask to prove your ideas. It will also help you stay on track and get the most out of the customer’s time. Feel free to deviate from the script though and don’t stress about getting an answer to everything – you will learn more by letting the conversation flow naturally. Don’t bother to send questions in advance to the customer; you should be listening closely to their reaction. Another tip: ahead of your interviews write down what you think the answers will be. It’s virtually guaranteed that you will hear something different from customers along the way and it’s a great way to document your learning.

Tip 3: Ask open-ended questions. In the early discovery stages you don’t know the right questions to ask, so open-ended questions lead you to new questions you hadn’t thought of asking. If you are asking Yes/No questions in your interviews, you are assuming too much. Open-ended questions give you insight into desires and motivations that can help you understand buying behavior (often an irrational process). Asking a customer “what’s the worst part of your day?” will yield far more insight than several survey-type questions. Yes/No questions are fine for getting specific answers, but they presume you know the right questions to ask.

Tip 4: Let them talk. You should be talking less than half the time. Ask them a question and then shut up. It’s OK to let a potential customer think about their answer. Let customers fumble through their answers without jumping in and you will get deeper insight into their thought process. It’s OK to have a bit of radio silence. If you are at the early stages of your product concept you should be in pain-finding mode – when you let customers speak, you may find pain in unexpected places.

Tip 5: Dig deep and ask why. Don’t accept the first answer and move on to the next question on your list. Use the five whys to get to the root cause of a statement. During discovery for a new product a few years ago, I had potential customers tell me they hated going to the office on the weekend to finish up work. Taken at face-value, this is obvious –who loves going into the office on the weekend? But by probing deeper, we uncovered underlying fears and desires. They wanted to see their kid’s soccer match. They feared missing a potential business opportunity. They wanted flexibility. Through deeply understanding customer problems and our value proposition, we were able to build the right features, charge a higher price for the product,and craft better messaging. By asking “why?” you can understand real motivation and uncover your product’s potential.

In the next post I’ll share five more tips for getting the most out of your customer development interviews.

10 Tips for Amazing Customer Development Interviews (Part 2)

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Adventures in Customer Development

Posted on Mar 13, 2012 | Posted by Jim Semick

I like lunch.  About once each week a startup founder, aspiring entrepreneur, product manager, or other software professional asks me to lunch to share my advice about how to test whether an idea will become a successful product.

For the last 10 years, I have been a practitioner, advocate, and coach for using a structured process to discover great new software products that customers will actually buy. The process takes the best of customer development, lean startup, business model canvas, market validation, and other methods to discover that elusive product/market fit.

Conceptually the process is easy to grasp, but is one that many startups and product teams don’t do well. It’s based on the premise that most of what you have in your head or business plan is an assumption. That assumption may (or in most cases may not) survive once it has its first interaction with a real customer.

But there is a way to validate your product hypothesis scientifically to determine a business model and product that gets it right the first time. Through the process you can discover products that solve real problems. I’m fanatical about the process and honestly will talk about it with anyone who will listen, especially if there’s food involved.

The reason I’m such a rabid fan is that I have seen the dark side. The side of “build it and they will come.” Early in my career I worked for Expertcity, a dot-com era company with a fantastic team but a failed business model. Millions were spent building and promoting the product. But the customers never came.

It was there I learned the skills to validate the product and business model before building the product. And I was lucky to learn from people far smarter than me. From the ashes of that failure I validated and helped launch several successful products now generating several hundred million dollars in revenue, including GoToMyPC and GoToMeeting.

Since that time I have used the process in subsequent ventures and with clients’ ventures with great success. By my rough estimate, I have cold-called and cold-emailed thousands of prospects, and conducted well over 1,000 in-depth interviews with businesses for B2B products that did not yet exist.

Although I validated and defined products that entered the market with great success, some product concepts never saw the light of day, having been shelved after the first dozen validation interviews. I consider those early “failures” to be successes, having saved investors and founders millions.

Through the pain of shredded business model sketches, cold calling, uncomfortable interviews, lengthy MVP meetings, hasty AdWords campaigns, untold pivots, drop-in prospect visits, and dozens of dreary conferences, I have learned several key lessons about how to do it right.

I’ve also continued to learn lessons from mentors, projects with clients, and my own entrepreneurial adventures, and other practitioners of customer development. This blog is to share those lessons.

Jim

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