Harvard i-lab | Startup Secrets: Turning Products into Companies

Key Concepts

• Feature vs. Product vs. Company: Distinguishing between a basic functionality, a standalone offering, and a full-fledged business.
• Minimum Viable Product (MVP): A version of a product with just enough features to satisfy early customers and provide feedback for future product development.
• Minimum Viable Segment (MVS): A tightly defined target market where the MVP perfectly addresses a specific need, enabling repeatable sales and consistent messaging.
• Go-to-Market Fit: Aligning product development with a specific market segment, ensuring consistent messaging, positioning, and delivery.
• Slippery Product: A product designed to minimize friction in the customer journey, making it easy to try, buy, implement, and use.
• Value Proposition: The value a product or service offers to customers, including the gains they experience and the pain points it alleviates.
• Open API: A publicly available application programming interface that allows developers to integrate their applications with a service or platform.
• Product-Market Fit: The degree to which a product satisfies the demands of a particular market.
• Disruptive Innovation with Non-Disruptive Adoption: Creating a groundbreaking product that doesn't require significant changes in customer behavior or infrastructure.
• 1503 Account: A sales strategy at SolidWorks focused on targeting small accounts (1-5 seats) with short sales cycles (0-3 months) for quick wins and market penetration.

1. Introduction: Turning Products into Companies

• The session focuses on the challenges of transforming a product idea into a sustainable company.
• Startup Secrets aims to provide a framework for investigating key areas rather than offering definitive answers.
• The discussion emphasizes that many startups begin with a product and need guidance on navigating the unique challenges that arise.
• Two guest speakers, Greg favalora and John mlan, share their experiences with 3D technology companies.

2. Feature, Product, or Company: A Fundamental Question

• Venture capitalists often assess startups by determining if their offering is merely a feature, a product, or a potential company.
• Examples like messaging (Twitter), photo sharing (Instagram), check-ins (Foursquare), and directories (Facebook) illustrate how seemingly simple features can evolve into successful companies.
• The iPad is cited as an example of a product initially dismissed as a "big iPod" that became a revolutionary consumer device.
• The key is to understand what makes some ideas remain features while others transform into thriving businesses.

3. Greg favalora's Story: The Challenges of Commercializing 3D Displays

• Greg favalora shares his experience of inventing and attempting to commercialize 3D displays through his company, Actuality Systems.
• The company developed a "crystal ball" device that created floating 3D images visible without glasses.
• The initial vision was to revolutionize mechanical CAD by enabling virtual prototypes, but the company struggled to find a viable market.
• Key Challenges:
  • Insufficient Funding: Raising only $1.5 million in the late 1990s was difficult despite the dot-com boom.
  • Technical Complexity: The display required advanced technology, including a custom DLP chip from Texas Instruments, which was difficult to obtain and reverse engineer.
  • Market Identification: The company struggled to identify a market where customers were willing to pay for the technology.
  • Lack of Product Marketing: The company initially lacked a strong marketing focus, particularly in understanding customer needs and defining the market.
  • Pivoting: The company pivoted to Machine Vision software for cancer treatment planning, but the market tanked in 2009.
• Lessons Learned:
  • Deeply understand at least one market where customers will pay.
  • Secure more funding than you think you need, especially for Hardware.
  • Don't just know the names of markets; understand the flow of money and who will write the checks.
  • Invest in a good product marketing person to define the market and create a marketing requirements document.
• Patent Sale: After years of struggle, the company sold its patents, providing a small exit for investors.

4. The Product Company Gap: Go-to-Market, Business Model, and Execution

• The gap between a product and a company is filled by go-to-market strategy, business model, and execution.
• The solid works story, contrasted with Greg's experience, demonstrates that success is possible.
• Shifting Expenses:
  • Initially, 100% of expenses are typically in engineering.
  • As the company matures, expenses shift to proving market acceptance.
  • Eventually, sales and marketing become the dominant expenses.
• Apple's financial statements show that they spend only 2% on R&D but triple that amount on sales, general, and administrative expenses (SG&A).
• The goal is to build a product that reduces the cost of SG&A by effectively intersecting the market and removing friction from the go-to-market process.

5. Developing Foundations: Core Value, Crowdsourcing, and Co-creation

• Extract the most value from development by focusing on the core value proposition.
• Develop the minimum viable product (MVP) and then even less, focusing only on the exceptional capability.
• Utilize crowdsourcing to build products faster and more efficiently.
• Co-creation Secrets:
  • Build on yourself by creating a platform that internal Engineers use to build the product.
  • Make the platform open and extensible so others can add drivers and functionality.
  • Leverage open-source communities and millions of lines of code available for free.

6. Value: Solving a Valuable Problem

• Before building any features, identify the problem being solved, who it's being solved for, and how significant it is.
• A minimum viable product is irrelevant if it doesn't solve a valuable problem.
• Viable does not mean valuable; they are distinct concepts.
• Use a before-and-after scenario to qualitatively assess value.
• Validation:
  • Get out of the building and understand customer needs.
  • Selling is an important part of validation, but understand why customers are paying.
  • A real market exists when customers are paying for something.
• Gain-Pain Validation: Understand not just the gain for the customer but also the pain they must endure to achieve that gain.
• Avoid multifaceted value propositions; focus on solving one problem for one audience.

7. Targeting and Segmentation: Minimum Viable Segment

• Product-Market Fit requires a tightly defined target market (bullseye) that perfectly aligns with the product.
• Avoid building features for disparate customers; instead, find customers with the same pain and need.
• This approach keeps the product focused, ensures consistent messaging, and enables a repeatable business model.
• Minimum Viable Segment (MVS): A segment where the product meets the needs of multiple customers without requiring changes to the product or go-to-market strategy.
• The MVS enables repeatability, consistent messaging, and the opportunity to dominate a niche market.
• Finding Pain Points:
  • Get out of the office and talk to potential customers.
  • Create a scorecard to track customer needs, pain points, and willingness to pay.
  • Seek prepaid customers to validate real pain.
• Blatant Critical Need: Target a segment where the problem being solved is urgent and unavoidable.
• Focus on a small segment that can be dominated to start, rather than trying to boil the ocean.

8. Vision vs. Execution: A Roadmap for Success

• Create a roadmap that outlines how the technology will evolve into a feature, product, solution, and ultimately a company.
• Constantly validate the roadmap from the customer's perspective.
• Use customer-based metrics to validate progress along the roadmap.
• Focus on external metrics that demonstrate customer value and engagement.

9. Architecting to Attract: Creating Slippery Products

• Create "slippery products" that minimize friction in the customer journey.
• Slippery Product Characteristics:
  • Simple
  • Low to no initial cost
  • Installs easily
  • Proves value quickly
  • Plays well with others
  • Easy to use
  • ROI is obvious
  • Sticky (customers can't live without it)
• Simplicity:
  • Advantage = Innovation x Simplicity
  • Focus on the core capability and partner with others for additional functionality.
• Low to No Initial Cost:
  • Frictionless trial can help identify customers.
  • Monetize by providing value and creating a virtuous circle.
  • Build in verality to encourage sharing.
• Installs Easily and Integrates Well:
  • Embrace and extend existing processes and products.
  • Utilize open apis for integration.
  • Minimize change for customers.
• Proves Value Quickly:
  • Provide instant gratification for consumers.
  • Demonstrate rapid payback (within 3-12 months) for Enterprise customers.
  • Build self-proving value through analytics.
  • Progressively disclose capabilities.
• Easy to Use and Apply (UBIE - Out of the Box Experience):
  • Create a delightful experience that encourages engagement.
• ROI Should Be Obvious:
  • Quantify the return on investment (increased revenue, reduced costs, competitive advantage).
  • Build a calculator to demonstrate ROI.
• Sticky (Customers Can't Live Without It):
  • Fulfill a need that customers become dependent on.
• Disruptive Innovation with Non-Disruptive Adoption: Create a groundbreaking product that doesn't require significant changes in customer behavior or infrastructure.

10. John mlan's Case Study: SolidWorks and the 1503 Strategy

• John mlan shares his experience at SolidWorks, a 3D CAD company that grew to $600 million in revenue.
• SolidWorks addressed the need for affordable and easy-to-use 3D modeling software.
• 1503 Strategy:
  • Target small accounts (1-5 seats) with short sales cycles (0-3 months).
  • Focus on companies with existing 3D experience but limited adoption.
  • This strategy enabled quick wins, predictable revenue, and scalable growth.
• Ecosystem:
  • Focus on core modeling and build a partner system for additional applications.
  • Create a three-step process for partner development: marketing cold fusion, leader selection, and follower adoption.
• Key Insights:
  • Events Force Actions: Use deadlines and events to drive decisions.
  • The Perfect is the Enemy of the Good: Get the product done and iterate.
  • Beta Testing: More valuable when customers are paying.
  • Subscription Pricing: Align interests across the value chain.
  • Hire Well: Seek salespeople motivated by money and recognition.
  • Culture: Create a culture of profitability and customer focus.
• Analytics:
  • Use analytics to understand customer behavior and identify opportunities for bundling and pricing.

11. Synthesis/Conclusion

• Turning a product into a company requires a deep understanding of the market, a focus on solving valuable problems, and a commitment to creating a "slippery product" that minimizes friction for customers.
• The 1503 strategy at SolidWorks demonstrates the power of a well-defined go-to-market approach that aligns product development, sales, and culture.
• Analytics, customer feedback, and a willingness to adapt are essential for building a sustainable and profitable business.