Building a successful business model isn't about changing your company based on every bit of feedback: It's about understanding whom to listen to and why.
The art of entrepreneurship and the science of Customer Development
is not just getting out of the building and listening to prospective
customers. It's understanding whom to listen to and why.
I got a call from Satish, one of my ex-students last week. He got my attention when he said, "following your customer development stuff is making my company fail." The rest of the conversation sounded too confusing for me to figure out over the phone, so I invited him out to the ranch to chat.
'WE DID EVERYTHING YOU SAID'
When he arrived, Satish sounded like he had 5 cups of coffee.
Normally when I have students over, we'd sit in the house and we'd look
at the fields trying to catch a glimpse of a bobcat hunting. But in this case, I suggested we take a hike out to Potato Patch pond.
We took the trail behind the house down the hill, through the forest, and emerged into the bright sun in the lower valley. (Like many parts of the ranch this valley has its own micro-climate and today was one of those days when it was ten degrees warmer than up at the house.)
As we walked up the valley Satish kept up a running dialog catching me up on six years of family, classmates and how he started his consumer web company. It had recently rained and about every 50 feet we'd see another 3-inch salamander ambling across the trail. When the valley dead-ended in the canyon, we climbed 30-foot up a set of stairs and emerged looking at the water. A "hanging pond" is always a surprise to visitors. All of a sudden Satish's stream of words slowed to a trickle and just stopped. He stood at the end of the small dock for a while taking it all in. I dragged him away and we followed the trail through the woods, around the pond, through the shadows of the trees.
We sat on the
bench staring across the water, with the only noise coming from ducks
tracing patterns on the flat water. Sitting there Satish described his
"We did every thing you said, we got out of the building and talked to potential customers. We surveyed a ton of them online, ran A/B tests, brought a segment of those who used the product in-house for face-to-face meetings. " Yep, sound good.
"Next, we built a minimum viable product." Ok, still sounds good.
"And then we built everything our prospective customers asked for." That took me aback. Everything? I asked? "Yes, we added all their feature requests and we priced the product just like they requested. We had a ton of people come to our website and a healthy number actually activated." That's great I said, "but what's your pricing model?' "Freemium," came the reply.
Oh, oh. I bet I knew the answer to the next question, but I asked it anyway. "So, what's the problem?"
"Well everyone uses the product for awhile, but no one is upgrading to our paid product. We spent all this time building what customers asked for. And now most of the early users have stopped coming back."
I looked hard at Satish trying to remember where he had sat in my class. Then I asked, "Satish, what's your business model?"