Series: Day One

Managing Early Customer Development

Sunil Nagaraj

Module Description:
Sunil talks about the investigative approach of the "entrepreneur as scientist" in charting early customer development and searching for a repeatable and scalable business model.

Full Transcript:
Hello, everyone. Welcome to our Ubiquity University module on managing early customer development. Today we'll be talking about how pre-seed and seed stage entrepreneurs can figure out which features to build, which customers to listen to, and how to connect the dots between those, especially before you have your first product
in market, before you have your first revenue-generating customer.

My name is Sunil Nagaraj and I'm with Ubiquity Ventures. We're a pre-seed and seed stage venture capital firm, investing in software beyond the screen startups. These are startups that are using smart hardware, machine learning and other technologies to solve real-world physical problems, helping software move beyond the screen.

The agenda here is three parts. We'll talk about why we're gonna think about customer development in a different light, that it's all about search, and then we'll go into two tools that'll be really useful.

So I'm a huge Steve Blank fan. I love this definition of a startup. It's not that a startup is a small company. Instead, the definition is that a startup is a temporary organization. It may be here tomorrow or not, and that may be a good thing if it's not here tomorrow, but it's a temporary organization designed to search for a repeatable and scalable business model. For me, the operative word here is search. This is an organization that is hunting very quickly and with an agile team to find the right set of features to please the right set of customers. And that's really what we're looking for. We're not trying to sell a product or force it down a customer's throat. What we're trying to do at this early stage is set the foundation that we've nailed the search so that everything else down the road is a lot more straightforward. So the mindset that I like to think about is that entrepreneurs at the early stage, again, maybe before your first product is out, definitely before your first customer is that you're a scientist.

And scientists, in my mind, do two things. Number one is they document everything religiously and the tool they use for that as a lab notebook. The second thing that scientists do is that they are able to periodically synthesize the learnings. I'm not sure of all the tools they use for this, but I think one that I would recommend for early stage entrepreneurs is the idea of a heat map. So let's dive into what both of those tools mean.

This idea of a lab notebook, what this means is you're writing everything down in a running log, specifically every interaction with customers, partners, advisors. You want to have this in a Google Doc every time you talk to somebody. And the key here is that you want to write down verbatim phrases. You don't want to erase things just like a scientist 'cause you might discover penicillin, and what's important now you may see, what's important later you may not notice at all right now. So as part of this process, you go back through this every month or two in detail to see if there's a nugget, something a customer or prospective customer said offhand that today is now in focus, even though at the time it didn't seem to make a lot of sense. You can see on the right side the kind of rough template here as you're talking to different folks, marking down the date, hearing what's going on in their lives, what's going on at work with their pain points, and then maybe bouncing a few feature ideas off of them and trying to suss out which ones are making 'em jump out of their chair. Now, this is for you, it's a good use of time to sort of document this. It's also great as you think about recruiting me as an investor, recruiting candidates, to be able to show the depth of your customer insight that you have spent all this time, dozens of hours, dozens or hundreds of pages. This is a useful tool in many aspects. But first and foremost, it's for you. And the goal here is to encourage you to inhabit the mind of your customer, right? I think at the pre-seed and seed stage, an entrepreneur can often get caught up with their product, their vision, but it needs to be equally or perhaps more important to understand your customers. And this refocuses you on customers, what they're thinking, how they're doing. And continually having this process of checking in with customers with a documented customer log is a really helpful thing. So that's the lab notebook, the first of two tools.

The second tool is the heat map. Now, the idea behind the heat map is you're talking to so many prospective customers, advisors, tons of information, dozens or hundreds of conversations and how do you use this? How do you show this? How do you talk to your board about this? So a tool that I've found to be much more helpful than reading off different anecdotes is actually to try to summarize it with this heat map. And let me lay out what this heat map will be in the context of an example company. So this is a new company with a computer vision camera, let's say. So just an example, on the x-axis, the goal is to list out a few features or a few benefits. So in this example, a computer vision camera might be useful for detecting defects. Maybe it's useful for detecting changes in a product or in a warehouse, perhaps monitoring workers or perhaps auto activating systems. These are distinct benefits. Some of them you have the idea for, some of them maybe your customers have mentioned. But you wanna lay these out and the goal is to start to separate and tease apart who's interested in what. On the y-axis, there's more flexibility. You can make this any dimension that you'd like, but the goal is that you want to separate the customer interest by another attribute. In this case, with the camera, I've chosen to talk about the form factor. It could be handheld, it could be wall-mounted. It could be a 360-degree camera. So what we're trying to do now is within this solution space, where are we seeing customers or prospective customers interested? So I'll plot here one conversation, a hypothetical conversation with McKesson. At the end of it, it seemed like they really had strong interest in a handheld defect identification. You can plot the rest of your customer conversations, and in a very quick glance, it becomes a little more obvious where the heat is, where customers are really interested in what you're doing, where they seem to be jumping out of their seats. And this points to likely where you should focus your product. Now, again, as an entrepreneur, you have to decide what you want to build versus what customers want, but this is a really valuable input as you think through that. I'll give you another example.

At the top right this time, we'll talk about a device management platform. And now on the bottom, what you'll see are different features. Monitoring field devices, if you have a device management platform, all the way to making sure you're compliant, locking out devices. So this can be a set of features or benefits. I think that should always be the x-axis. So on the y-axis, this time, we have a very different idea. So instead of talking about the form factor of the solution, this time, we're talking about the type of customer. Is it a startup, a large corporate or government agencies? But again, the idea is to pull apart, so you don't muddle the signal, pull apart the dimensions of customer interest, and that way, you can plot pretty precisely. Another element here is very likely a customer logo will go in multiple places because they're interested in different parts of your product, and that is great. But again, the final takeaway here should be that you can see visually a lot of genuine interest is in a particular quadrant or a particular area of this chart. So a very useful tool. As you're finishing v1 of your product, you also can use this as the last bullet on the left says, you can use this to think about adjacent features. Ideally, you can sort the x-axis by how far away it is from your current product. You cluster features that are close to each other in development time to each other. And then you hopefully can see that certain features require more work to jump to the next cluster of heat, or maybe it's farther away and you might have to bifurcate the product. So again, this tool can be used in many ways. I love the idea of using this to chart your search, communicate it to the board. As a board member, I can glance at this really quickly, understand that you've done a lot of homework, that this matters more than anything I would say about your product features and that you're guiding the company with a customer focus in mind.

So in summary, what we're talking about is how to approach this search. It's all about a search and these two tools of having a lab notebook and having this heat map, I think are really powerful for yourself. They're powerful for your employees and your investors to understand how the search is going. So I'd strongly recommend using them.

So this has been our Ubiquity University module on managing early customer development. My name's Sunil Nagaraj. I would love to hear from you. I'm at Sunil at ubiquity.vc. If you'd like to set up a meeting, we're at pitch.ubiquity.vc. Thank you.

8 minutes
Series: Day One
Startup Stage:
Pre-seed, Seed
Upload Date: