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How ratings result in worse, not better, customer service

jithaDecember 21, 2015

A few weeks ago, my wife and I were in Galle, Sri Lanka for a much-awaited vacation. We chose a villa with great reviews on TripAdvisor. It seemed a decent place. A little far from the main town, but the hosts were quite friendly.

But we couldn’t get much sleep any of the nights we stayed there, because our room had bedbugs.

After we came back from the trip, we made sure to rate the place. We left not one, but two ratings (one each from my wife and me). Both of them were 5 stars.

Wait, what?

Did we enjoy getting bitten by bedbugs?

I was surprised too. Not just at my own rating, but at other ratings on TripAdvisor too. This place was one of the most recommended ones in Galle!

So how did this happen? How did I – and all the other guests – rate inferior customer service so highly?

Do ratings work?

The prevailing wisdom is that ratings work. That’s why they are everywhere. When you open an app on your Android phone, it asks you to rate it on the Play Store. Complete a ride on Uber, and you have to rate your driver. Order something from Amazon, same story. Open your inbox after a long vacation, and what’s the first email you see? A message from either your airline or hotel, requesting you to rate your experience.

I’ve always found the act of rating quite empowering. The equation is simple – if you can rate a service provider in public, he has every incentive to ensure that you get great service. Right?

Well, after that incident in Galle, I realized that ratings may not result in better customer service. In some situations, they may be worsening it.

Wait, how does that make sense?

I’ll explain. But first, let’s agree on two key facts about ratings.

1. Ratings have an impact on service providers. That’s one reason they’re ubiquitous. Drivers on Uber do get blacklisted for low ratings. Top-rated hotels on TripAdvisor do get ten times as many bookings as lower-rated ones.

2. Customers know ratings have an impact. This makes them capricious (this Verge article calls them – us – entitled jerks). To see this, you only need to see a few app reviews. Sample these ratings on Circa (an app that used to provide summaries of important news):

Ratings are supposed to highlight how good an app is. But no, sometimes you get a 1-star for an innocuous review request.

This customer fickleness is not just an app store phenomenon. As the Verge article says,

We rate for the routes drivers take, for price fluctuations beyond their control, for slow traffic, for refusing to speed, for talking too much or too little, for failing to perform large tasks unrealistically quickly, for the food being cold when they delivered it, for telling us that, No, we can’t bring beer in the car and put our friend in the trunk — really, for any reason at all, including subconscious biases about race or gender.

Please the customer, and hope for the best

The fact that we wield a strange amount of power and know it, turns upstanding, proud cab drivers and B&B hosts into fawning, obsequious and servile slaves. You can’t jilt or offend a customer in any way. A single misstep, and you get a 1-star rating. Not a 4- or 3-star. Your last five customers may have given you 5 stars, but this single rating could put you out of business. In New York, Uber delists drivers from the platform if they go below a 4.5 star average!

So what is a service provider to do? Provide honest-to-God great service. And hope that nothing gets screwed up.

But there’s an easier way.

The honest approach is hard, time-intensive and expensive. And it’s subject to random whims of the entitled customer. If a customer expects Hilton service at McDonald’s rates, you’re bound to get 1 star. No matter what you do.

But there is an easier, quicker and more inexpensive way. One of the oldest psychological tricks in the book.

Dr. Cialdini, the author of Influence, calls this trick “Liking – The Friendly Thief”. Studies show that if you spend more time with a person, you end up liking her. And if you like a person, you tend to favor her in your dealings.

At a certain level, this is obvious. But that doesn’t make it any less powerful. Malcolm Gladwell cites a great example of this in Blink. Patients don’t file lawsuits when they suffer shoddy medical care, if the doctor is polite. They only file when they feel the doctor mistreated or ignored them.

“People just don’t sue doctors they like.”

So, to get a great rating, all you need to do is: (a) smile a lot and appear likeable; and (b) talk a lot, to create a human connection and familiarity.

Tried and tested. Once you get to know the service provider, you’d be a stone-hearted reviewer to leave anything less than 5 stars.

Nice host + bad customer service = 5 star rating

That’s what happened to us in Galle. Even though I was aware of this cognitive bias, I was powerless to counteract it.

The owner received us with great cheer. He chatted with us for hours. Always smiling and laughing (even when I didn’t crack a joke. And I’m not that funny anyway). I learned a lot about his life. I commiserated on his past troubles, and lauded him on his recent turn in fortunes.

My room still had bedbugs.

But my wife and I didn’t complain. Who can tell off such a nice guy? And when he requested us to leave two ratings on TripAdvisor, how could we refuse?

Talk more. Do less. Get 5 stars. Repeat.

This is just one small episode. But it sets in motion an insidious feedback loop, which could result in worsening customer service over time.

Customer give a 5-star rating despite bad customer service.
Service provider sees this as validation of his strategy. And becomes more chatty, more fawning.
Soon, if he’s smart (our guy was), he realizes there’s no return on actual customer service. It’s much easier to smile and bluster, than it is to clean the room. Over time, he’ll become more talkative, and true customer service will degrade.

Woe betide the unsuspecting traveler when that happens.

Thus, ratings may have an impact that’s the polar opposite of your intention.

How do we break this loop?

Now, I’m sure you want great customer service. So, how can we break this loop?

Just being aware of what’s happening is not enough. You’ll only feel worse, as you continue to give 5-star ratings like a powerless lab rat.

The only way to break this cycle is to have a system of multiple ratings on different attributes, instead of one single unidimensional one.

Why would that work? For three reasons:

It would force objectivity. If you’re rating your stay at a B&B separately on Cleanliness, Quality of Food and Friendliness of Staff, you’re more likely to question the halo around your host’s head, and distill your cheery feeling into its components
It would give the service provider the right feedback on how to improve.

Ratings are here to stay. Let’s make sure they actually improve customer service. Rather than slowly turning us into smiling zombies.

How to save yourself from a bad startup idea that looks good

jithaNovember 21, 2015 9 Comments

The startup bug has bitten you. You want to start a business, grow it for a few years, sell out and rest easy for the rest of your life. A great dream to have. But that’s the easy part. The hard part is building the business. And this long, arduous journey starts with a single step – having a great idea.

How do you come up with a startup idea? To start, you read this article by Paul Graham of Y-Combinator. It’s thought-provoking, even by Paul’s lofty standards. Paul says a lot about the characteristics of great ideas. But he also talks about a similar-looking but antithetical concept – the “sitcom” startup idea.

What is a sitcom startup idea? It’s one which sounds plausible, but is actually bad.

This is not just a bad idea. We have tons of those, and they are easy to identify. Even if our ownership of the idea blinds us to its infantile stupidity, our friends will warn us. They’ll tell us it’s the dumbest thing they’ve ever heard. And we can swallow our pride and move on to the next idea.

No, the sitcom startup idea is not bad in the same way. It’s an idea which sounds plausible. So plausible that when you go ask customers whether they’d use it, they don’t say no.

This is what makes it dangerous. You can read Lean Startup, dutifully ‘validate’ your idea with customers, and then build it. Only to find out that there actually is no market.

Social network for pets

Paul illustrates this with an example of a ‘social network for pets’. If you have pets, this sounds like a good idea. Sure, you can imagine posting photos of your pet parakeet on petlife.com, where others are waiting with bated breath to “like” them. Or, what’s far more insidious, you can imagine others around you loving this service.

I actually tried this during my lecture in IIM Trichy, and people loved the idea. But it’s bad on two levels:

It’s erroneous to assume that if people say they like a product, they’ll use it. I might like 30 different websites, but that doesn’t mean I’ll check all of them every day. Given my limited attention span, the only social network I’ll use daily is Facebook.
If you talk to 100 people and they all say they “know someone who would use this”, then you’ve found yourself a community of 100 almost-users. Or to be precise, exactly zero users.

So how do you differentiate between sitcom startup ideas, and truly promising ones? How do you know if you’re on to something huge, or just a mirage?

The short (and hard) answer is – you try anyway. You build an MVP and check if there’s traction in the market. If there is, congratulations, it worked. If there isn’t, then you know you just had a “sitcom” idea.

But there is an easier way. I’ve come up with a few patterns to identify what is probably a bad idea, even though it sounds plausible.

Before we jump in, a caveat. I don’t know if any plausible sounding idea is actually bad. What I do know though, is that the universe of plausible ideas is much, much larger than the set of good ideas. So, an idea that is only plausible is probably bad.

Just like I know that a monkey banging away at a keyboard will not produce Romeo and Juliet (it might, but the probability is infinitesimal), if all I know about a startup idea is that it’s plausible, it’s probably bad. Sure, you get a Twitter every once in a while. A product that seems random can suddenly catch fire. But such instances are so few and far between that you can ignore them.

With that done, let’s dive in to the patterns:

1. Broad and shallow, vs. narrow and deep

One of Paul’s theses in his article is that you should solve a deep need for at least a few people. If the need you are solving is shallow, then it’s not a great startup idea. Even if it affects a broad set of customers.

It’s got to be a major problem – a mild or one-time issue won’t cut it.

You’ve got to create a product that at least a few people NEED, not one that many people WANT.

A sitcom idea of the ‘broad and shallow’ variety can follow several patterns.

A “vitamin”, not a “painkiller”

The social network for pets falls into this category. It’s a nice-to-have, like a vitamin capsule. No one needs it, like the root-canal patient who’ll pass out without a painkiller. If people just ‘want’ what you’re building but don’t ‘need’ it, tread with caution. You may be onto a bad idea that sounds good.

Instead of focusing on cool things people could use, try and solve a real problem.

Not solving a top-tier problem

But only solving a problem is not enough. It has to be important. Simply put – if the problem you’re solving is not one of your customer’s top 3 problems, it’s not important. Give up now, before it’s too late.

I once thought of building a software tool to help VCs manage deal flow. It would have a visual funnel, to tell the VC how many deals they have seen in the last 3 months, and at what stage of discussion each deal is. And they could dice it by any filter (e.g., SaaS vs. consumer, location, stage of business, etc.) to see their deal pipelines.

A great idea, I thought. The only issue – it’s not an important enough problem. Getting strong deal flow is far, far more important than tracking it. Many VCs are happy enough using Excel to track their pipelines. They’re not even trying generic funnel management systems like Salesforce. Why will they bother using one tailored for VCs?

If the problem you’re solving is not one of your customer’s top 3 problems, it’s not important.

“Solving a problem people don’t know they have”

This is a first cousin of the two patterns above. While not a “vitamin” solution per se, it’s solving a problem people don’t know they have. Which begs the question – how do you know they have this problem?

I tried doing this a couple of years ago, with a plug-and-play loyalty program for small business websites. Users would get points for coming back to the website every day, reading articles, sharing to social networks, etc.

A great idea for large, stable businesses trying to increase customer retention, maybe. But a small business finding its feet? These guys don’t even think about gamification or loyalty. They have other problems. They need to build a user base first, before trying small tricks to engineer loyalty.

I tried selling this for 6 months. It did not work. It’s hard enough convincing people to buy your product. Why do you want to add the burden of convincing them that they need it?

If you want to avoid building something no one wants, then solve known problems.

“This product solves everyone’s problems” OR the “Microsoft Office” product

I love Microsoft Office. It’s so flexible, so all-encompassing. No matter what type of problem you’re working on, you can bet that Excel and PowerPoint will be super helpful. Or think of Google – no matter your query, you can find the answer.

These are all excellent products. But aiming to solve everyone’s problems in one go can sound the death knell for startups. Why? Taking the example of my gamification system again:

It’s unlikely that there’s a dire need for your product among a huge mass of people already. If you’re solving a problem for everyone, it’s probably a broad and shallow problem, not a deep one. My system was a nice-to-have, not the answer to their top 3 problems.
In most cases, flexible products necessitate a learning curve among customers. Newsflash – your customers are too busy to spare any time to learn how to use yet another product. Unless you’re solving a problem as critical as the ones Office and Google solve, good luck getting adoption. It’s more sensible to focus on one type of customer, and solve their problem better than anyone else.
Solving everyone’s problems at the same time requires a complex back-end. Why build that without strong market validation first? You’ll either end up building a buggy product, or worse, build a great product that no one wants. In the case of our product, the tech challenges proved intractable. Trying to integrate our system with several website technologies meant that it didn’t work well with any.

Trying to solve a problem for everyone often means you end up solving it for… no one.

“Cool product I’ve built”

You get this a lot from engineers (I’m one too). We focus on the product, because we feel that the product alone is good enough. “My cool new app allows you to share your photos with all your Whatsapp groups in one go”. Great, but what if your users don’t want that?

“Build it and they will come” doesn’t work, in this world where a million apps are fighting for people’s eyeballs. See the chart in this article to see how high the bar is. You need to be sure that you’re solving a problem, and a top-tier one. Else, you could just be a “solution searching for a problem”.

Demonstrate need first. Else, your intricate product could just be another elaborately constructed pipe dream.

2. Templatized business models

“Uber for X”

[as used in “Uber for bicycles: On-demand bicycles for your riding pleasure”, or “AirBnb for cars: Rent other people’s cars when they’re not using them”]

“Do you want a bicycle at this very moment?”

This template is as old as the Internet. Take what’s working in one sector, and plonk it into another. It was “Website for X” in the 90s, and “Social network for Y” in the 2000s. But it’s a dangerous stratagem. Why?

Sure, Uber has been uber-successful in the cab market. But that doesn’t mean on-demand could work for every other sector. Unless the idea has grown organically from a problem, you have to assume it’s bad. You have to assume that the founder has applied the Uber template to the first sector he could think of.

Another clue that you’re facing this situation is when founders have no real expertise in the area they’re building for. Then how do they know that the problem is real? They don’t. All they know is that the solution is real, for another sector.

“X for India”

This is an even more pervasive and notorious template. Unless the model has some kind of geographical constraint (e.g., on-demand cabs), there’s nothing stopping a successful US business from expanding to India.

Moreover, if the model involves network effects, then you’d expect something that’s grown in one place to capture share rapidly in other places too.

As Mahesh Murthy is wont to say, the Facebook of India is Facebook. The Tinder of India is Tinder, and not Woo.

There’s one more problem with this template – some models just don’t extend across geographies. On-demand bicycles may be a great idea in Scandinavia or Taiwan. But it just won’t work in hot, sultry, noisy and overcrowded Mumbai (gosh, why am I still living here?).

3. Incremental business models

This is another type of business idea that we see quite often. It often involves just a slight tweak to solutions existing in the market. Again, this can be of two types:

Cloning an existing player, but with slight improvement

Think “Uber with wi-fi”. Of course, Uber has started doing this now. But even if it didn’t, this would be a horrible idea for a startup. Wi-fi is not differentiation. It’s a cosmetic touch-up engineered solely to help you raise money from rookie investors.

It’s wrong on two levels:

It assumes that the incumbent will sit idle while you bring out an improved product. If what you’re bringing to the table is only an incremental improvement (i.e., 1x, not 10x), you can bet that the incumbent will also include it in their next release, if they find out it’s a helpful add-on. Don’t assume stupidity.
Often, your improvement has nothing to do with the core problem you’re solving. Wouldn’t it be silly to say, “Uber works, but people hate the fact that it doesn’t have wi-fi.”?

Cloning an existing player, but in an adjacent market

Back when Bookmyshow (a movie ticketing website in India) was only a couple of years old, a friend told me he wanted to build a “Bookmyshow for Plays”. This is a bad idea too. Bookmyshow had already solved the harder problem of getting customers. So, it was much easier for Bookmyshow to include plays on its platform, than it was for a new player to start afresh. And true enough, plays appeared on Bookmyshow a few months later.

A giveaway for this kind of sitcom idea is a statement of the form “Today’s solution is satisfactory. But mine’s much better”. For your idea to be definitively good, today’s solution cannot be satisfactory! At least for a segment of the audience. Otherwise, your idea would be like my deal flow management solution for VCs. A nice-to-have, but not nice enough to change an existing process.

What is nice enough though, to change one’s existing behavior? A 10x improvement – whether in ease, time taken, or effectiveness.

4. “No Competition”

You often hear founders say that they’re the first team to do X, and that there are no competitors. Or they may say that everyone is a competitor (which is another way of saying “no competitors”). If you hear this, run in the opposite direction as fast as you can.

Why? Why is lack of competition alarming? For two reasons:

If there really is no competition, maybe the market itself is unattractive. Today, it is difficult to come across a problem that no one has seen at all. Why do you want to solve unambitious problems, when it’s just as difficult as tackling ambitious ones?
The founders may not have done thorough analysis, or may be suspended in the myth that their competitive moat is bigger than it actually is. Would you want to back such founders?

Wait, so am I saying competition is actually important? Yes – many players trying to solve a problem demonstrates strong need. But to succeed, you still need to differentiate. You need to have an ‘unfair advantage’ in startup parlance. Whether industry experience, critical partnerships, etc. – you must have a secret sauce in your recipe for success.

Your competitors will not sit idle while you beat them. What’s your secret sauce?

That’s it. Those are the patterns that should raise your suspicion antennae when listening to startup ideas. Am I missing any? Let me know in the comments, send an email to [email protected], or tweet at @jithamithra.

Of course, some ideas may actually be great, even if they fit these patterns. They may end up changing the world. Only one way to find out for sure – launch an MVP, and prove me wrong.

What’s the right time to start up?

jithaNovember 2, 2015

[Note: This article first appeared on YourStory last week.]

A few weeks ago, I gave a talk at the Indian Institute of Management, Trichy, on entrepreneurship. [You can find my presentation here, and my reflections from the talk here]. I also had a chance to speak one-on-one with many students from the B-school, as well as from NIT Trichy, the engineering school they share a campus with.

One question I got from many students was this – “I have a great business idea. Should I start up now, or wait and gain some (valuable) work experience first?”

Let’s assume, for the moment, that their business ideas were indeed great. Then, what’s the right answer to the question? It’s clearly an important one. Not least for students without much worldly experience, making a “risky” choice. Let me try and answer it.

But hidden inside this nuanced question is a far more basic one – why should you start up at all?

Why start up at all?

Granted, there’s a ton of hype about startups. If you only hear of Flipkart raising billions or SnapDeal buying Freecharge, your glasses will be rose-tinted. But 92% of startups fail, and most of the survivors meander without decisive success. So, don’t start a company in expectation of a massive exit alone. Or even a small exit.

The journey of building a business is long and arduous. Even uber-successful Elon Musk compares it to ‘eating glass’! It doesn’t make sense, if all you have at the end of it is a minuscule probability of making some money. Especially if well-paying jobs are available.

So, why start up at all, if the expected monetary return isn’t high? Here’s my opinion, based on the last two years I’ve spent trying to build a sustainable business.

Starting a company from scratch teaches patience and long-term thinking. Few other experiences can match it. You often have to persevere in the face of repeated and several “No”s, making the joy of finally hearing a “Yes”, of beating the odds and succeeding, so much sweeter.
There’s an unmatched joy to building something yourself. Even more than the first time you wrote a “Hello World” program.
It’s a great learning experience. Nothing teaches you as much about starting up… as starting up (a point I’ll come back to later).
And there’s a tiny, tiny chance that you’ll luck out and won’t have to work for money again. But again, the probability is so low that on average, it won’t be higher than a full-time job (which has much less stress).

So, despite the lack of income, there’s definitely value in trying to start a company. But should you start one now? Or, as the prevailing wisdom in college campuses / steady jobs seems to be, should you wait and take the plunge later?

Should you wait?

Some of the main reasons you hear for waiting your turn at the startup lottery are:

“Let me gain some experience first – I don’t want to make any rookie mistakes”
“Let me collect a decent pool of money first”
“I need a brilliant idea. I come up with 3 ideas a day, but a little research shows that someone’s already doing it / it doesn’t work.”

All good reasons. But incorrect. Here’s why:

1. Experience: Hate to break it to you, but no experience can teach you how to build a business. Apart from trying to build one, that is. Recursive logic, but true just the same. Even if you work at a startup, it’s not the same as founding one.

Trust me, I know. I started a company after several years of experience helping companies enter new markets, launch new products, or develop business models. I knew how to build a new business from scratch. Except that I didn’t.

[Tweet “To be a good startup founder, you need to have already been a startup founder.”]

2. Resources: You don’t need a ton of money to start up. As I mention in this Slideshare (slide 30), it’s inexpensive to start a company today. Once you see consumer traction for your first product, you can begin investing more (or raise funding).

Moreover, today, tools like Kickstarter make it even easier to test your product concept for free, before investing your time and (other people’s) money in building it

3. Idea: This is the hardest roadblock – without a decent plan of action, your business will be stillborn. But it’s also an easy one – good ideas are a dime a dozen. Just look for problems you or your friends have, and try to solve them. Sooner or later, you’ll stumble upon a goldmine. Like Twitter did. Or Hotmail.

Thus, you don’t gain any specific advantage by “starting up later”. You’re much better off diving in now, when you’re young and less risk-averse. So, what are you waiting for?

I’d end the article now, but this answer leaves me a little unsatisfied. You see, a wise man once said – there are good reasons, and there’s a REAL reason. Experience, resources, lack of an idea – all these are great (but wrong) reasons. So what’s the REAL reason? What if you really need the money? What if the above reasons are just excuses?

Specifically – what if you want to start up eventually, but would be really comfortable if you took a job and earned some money first?

Well, you’re in luck, pal. Because this is a false question. You don’t need to choose between a job and starting up – you can do both!

[Tweet “You don’t need to choose between a job and starting up – you can do both!”]

Validate the idea (or the MVP if you will) in your free time, while working at your day job. Flesh it out gradually, observing user behavior and feedback on each iteration. If it catches fire, you’ll quit on your own!

What do you really need to start up? [Slideshare]

jithaSeptember 16, 2015 5 Comments

Last week, I was invited to the Indian Institute of Management, Trichy, to talk to the students about startups.

Given the hype associated with “starting up” today, with investors opening their purses wide and newspapers dedicating daily centerfolds, everyone wants in. And if I remember correctly from when I was a student (or even when I was working in strategy consulting), it can become difficult to separate fact from fiction when you’re looking in from outside. More so if your only source of information is a newspaper.

Therefore, I decided to speak on “The truth about startups”. Apart from being clickbait, the topic is also pertinent for a number of reasons.

Startup accounts in newspapers are almost always after the fact – they are tinted with 20:20 hindsight. There’s a lot more uncertainty when you start a business. Lots of things go wrong. All of this is airbrushed away in the ‘inevitable march to victory’ accounts you find in newspapers.
If you look for patterns only in companies that succeeded, then you’ll suffer from survivorship bias. Seeing that many successful founders are passionate today is not enough to conclude that it is necessary and sufficient for starting up. For all you know, the graveyard of failed businesses may be littered with passionate entrepreneurs (and it is, as you’ll see in the Slideshare presentation below).
As Steve Blank says, small companies are very different from large ones. A company that has just started is very different from one that has found product-market fit, which itself is distinct from one that has scaled. You hear only of startups that have found some measure of success already. Applying patterns from such companies to your fledgling company indiscriminately will at best be a waste of time. At worst, it can cause active harm.

As a founder who’s in the trenches right now, I thought I must set the record straight. When you’re trying to find your feet and learning how to build a sustainable business in an uncertain world, what do you really need to set out on the path to success?

I asked the students this question at the outset – what do you need to start a company? Almost all the answers were variants of the following:

Passion
Vision
Dedication
A brilliant idea
Lack of competition
A sound business model
Huge risk appetite
Tons of money / resources

These sound quite definitive. But they aren’t.

I don’t think you need ANY of the above to start up, as I explain in the embedded Slideshare presentation. They may become important at later stages of your startup’s life, but they are definitely not needed when you’re just starting out.

And I’m not saying this just to make a point. Some of the above factors are distractions at the start, and some others may in fact insidiously drive you to inevitable failure.

Then what do you need? You just need two things – a decent idea, and a willingness to learn. These are necessary and sufficient for most business ideas. Check out the presentation for more.

[Tweet “You don’t need passion or vision to start up. A decent idea and willingness to learn are enough.”]

The presentation also includes links to various articles for further reading. I love diving down the rabbit hole, and I hope you do too.

The truth about startups from Jithamithra Thathachari

I’d love your thoughts on this. If you see any gaps in logic or don’t agree with something, please comment here, write to [email protected], or tweet at @jithamithra. I’m willing to learn.

PS. Thanks a lot to Abhishek Agarwal, Aditi Gupta, Akshat Poddar, Shashank Mehta and Srinivas Chaitanya for their inputs on this.

The three (design) mistakes of my life

jithaSeptember 8, 2015 1 Comment

[Note: an abridged version of this appeared on YourStory last week.]

Don’t you get irritated when you make a rookie mistake?

I’ve been reading a few books and articles on product design lately (I recommended one of these in last week’s newsletter). Some recent, and some classics that designers still swear by, 30 years after first print. Comparing the two, one thing struck me. Devices, user interfaces and users have morphed beyond recognition. But the principles of good design haven’t.

Yet, we still make tons of elementary mistakes. I know I do. These were silly mistakes then, and they’re silly now. It’s a cycle we’re all prey to – make a few basic errors, learn from them (I’m optimistic), and then go make some new ones.

But, surely, reinventing the wheel is not efficient. Each time someone repeats a basic mistake, it’s a waste. A waste of our collective efforts.

So here’s my attempt at reclaiming squandered time. Here are the three most critical design mistakes I’ve made. I hope others who are building new products can learn from them (or scoff at me – I know I run that risk).

A. Not Onboarding the User (or Onboarding her, but badly)

Design gurus talk ad infinitum about the importance of onboarding users. And it’s also common sense. Therefore, in the first version of my app, I included a six-screen tour upfront to help users immediately see how they could get value from the app. But that didn’t work.

In a world where you lose 80% of your users within 3 days, users don’t just want to see the value upfront. They want to get the value immediately.

So, after a few cycles of lower user activation, we now focus exclusively on soft onboarding – guiding users as they do actual activities on the app, rather than “teaching” them before they enter.

[Tweet “Users don’t just want to see the value upfront. They want to get the value immediately”]

Another mistake we made was asking the user to invest too early.

If you ask the user to do some “work” before she’s sold on the app’s value, you’ve lost her. Let’s say you ask users to create an account. 90 per cent won’t if they’re not convinced that the app is great. What about Facebook login, you may ask. Yes, it takes only 14 seconds. But no, that’s too long.

To overcome this, we made the registration simpler in each successive iteration. First, we reduced the number of mandatory fields. Then, we removed some fields altogether. Then a couple more. Finally, we had only “mobile number” left. Just one ten-digit number, which your fingers know by rote; surely that’s not convenient? But still, user metrics were quite deflating.

It was only when we removed the login altogether that our sickly funnel began to recover. We now collect the mobile number only once the user completes her first iteration through the app – when she has already derived some value from it.

Moral of the story: Unlike your investors, your users need to see the return BEFORE they invest

[Tweet “Unlike your investors, your users need to see the return BEFORE they invest”]

B. Not Optimizing User Funnels

On the mobile screen, space is scarce. And given the vast multitude of competitors vying for your user’s attention, space in her mind is, if anything, in even shorter supply.

Therefore, you must keep things simple. Don’t make the user think about what she wants to do. Once she opens your app, the next step should be self-evident.

There are two ways to mess up here: (a) give the user too many options; or (b) put important actions deep inside the app. We paid attention to the first, but missed the second. No matter how many triggers we gave, if a functionality was two or more taps away in some menu, users wouldn’t see it.

Finally, we mapped out the possible user flows on the app. And redesigned it such that the user sees what she’s looking for on the first screen itself. And not in some corner of the header. Front and center. No brain cycles wasted makes for a happy user (and a happy me).

Moral of the story: Think about all the contexts in which the user will use your app, and make each of these as simple (one-click) and clear (visible) as possible.

[Tweet “Show your user exactly what to do – no brain cycles wasted makes for a happy user (and a happy you)”]

A related issue that several apps (including mine of course) suffer from is that funnels tend to be too long.

It’s pure wishful thinking: “I’ve placed a pot of gold at the end of the funnel. The user will jump through as many hoops as I place in the way.” Won’t happen.

We did this too. In one funnel, for example, we wanted the user to (a) watch a video; (b) answer a couple of questions; and (c) take a photo before they saw any value from the app. Some of our early adopters were enthusiastic enough to do this. But alas, this smoke did not bring fire, as our user base expanded.

Today, we’ve made our funnel much shorter, and are seeing far more users complete the journey through it. And they’re earning their (small) pot of gold.

The important learning for us here was that shorter funnels are always more optimized for conversion.

Removing low-value actions from the user flow increases the prominence of the high-value steps
Highly optimized flows make it insanely easy to understand, “what do I do next”
The user gets to her “AHA!” moment much faster and more often. This is especially important – as Facebook and Twitter will testify, what users do in their first visit is often a strong predictor of eventual loyalty and retention.
Fewer moving parts means it’s easier to tune the engine going forward as well.

[Tweet “The shorter your funnel, greater the likelihood that users will reach their AHA! moment.”]

C. Not personalizing user messaging

I learnt early on that notifications are quite powerful. When a user first installs your app, she may not check it often. Notifications help build the habit. Make her phone buzz every day with a message from the app, and she’ll check in often.

So, armed with time-tested copywriting wisdom, I set to work. I focused each message on the user benefit, and put a clear call-to-action each time. And it worked!

For a time, anyway.

Early on, we would get a solid bump in user engagement in the few hours after a notification. But that quickly fell away. As users got more acquainted with our app, the standard daily messages, albeit highlighting user value, became just noise. Of course the user knew how she could benefit from our app. She’d been using it for a month! After receiving a stock notification for five straight days, the only action users often took was to uninstall the app. As we very heartbreakingly heard from some of our (ex) users.

[Tweet “On receiving a stock call-to-action message for 5 days, the only action you take is to uninstall.”]

The only notifications that work sustainably are personalized messages. I don’t mean just including the user’s first name in the notification. That feels clever, true. But here’s the thing – every app worth its salt does it. And the user knows it’s automated.

Instead, customize the message based on what the user does on the app. If a user comes to your app every day for five days and suddenly misses a day, then tell her you’re missing her (in a non-creepy way, of course). If she’s close to a milestone, remind her of the rewards awaiting her. Remind of her recent wins on your app to bring her back. Even if a user knows these notifications are machine generated, they still work.

Referencing users’ past activities creates a much stronger hook, reeling them in.

Today, we strive to send more personalized messages to users, uniquely tailored to their usage of the app.

D. Bonus mistake – not learning from any of the above

Since you’ve stuck with me this far, here’s a bonus mistake. This is as rookie a mistake as they come.

Over our initial few months, we made several design changes to the app in each version. So, when user behavior changed (or didn’t change), we weren’t really sure what the driving factors were. Which changes helped, and which ones didn’t? Were none of them helpful? Or were some cancelling out others? No clue.

And even in those situations when the data may have had definite implications, we weren’t disciplined about looking at the numbers and learning. Does a tree fall in a forest if no one’s around, etc.

Now, we try and make changes in such a way that we can track their impact. Make a change, wait a while, and check for variance in user behavior. That’s the only way to learn what’s working and what’s not.

I hope I’ve learnt from these mistakes, and that our bucket won’t be as leaky now. What about you? What are the design mistakes you’ve made, that now make you cringe? Drop me a line at [email protected] or @jithamithra, or just comment here. I’d love to hear from you.

Winners don’t do things differently. They do different things.

jithaAugust 18, 2015 4 Comments

No, I haven’t made a typo in the title. The age old saying “Winners don’t do different things. They do things differently.”, made famous by Shiv Khera in his book You Can Win, is wrong.

I remember when the book came out, everyone quoted it as gospel. Every individual can be great. All you need to do is work hard, and work smart. And they would all nod knowingly at the last clause. So that’s what I did – studied hard, went to a good B-School, got a great job and worked hard (and smart) there.

But unfortunately, this saying isn’t true. And it’s becoming more false as technology eats the world (to co-opt Marc Andreessen’s pet phrase).

This mentality of doing things smarter now pervades all aspects of our life. But it suffers from one fallacy – what I call ‘focusing on the numerator’.

It’s like a company that focuses only on improving its profit margin. It brings in cutting-edge efficient machines, implements Just-in-time production techniques, and what have you. But with all these productivity improvements, how much could the profit margin increase? From 15% to 20%? 40%? 100%??

Even in the best (and impossible) scenario, the upside is capped at 100% of revenue. What if you focused, instead, on the denominator? What if you looked for ways to achieve a step jump in revenue? Suddenly, there’s far more value to capture, even if you are inefficient.

What you work on matters, and matters far, far more than how hard you work. This is an example of a Power law, which I’ve written about before. In the early 1900s in England, there was a profession of people called ‘knocker-uppers’ (no, it’s not what you think). Their task was to wake people up every morning. They would walk the streets with a long stick, and tap on windows till people woke up. Many of them worked hard. I’m sure they worked smart too – with well-balanced, aerodynamic and sonorous sticks. Still, they lost their livelihoods in a jiffy when alarm clocks came into the market.

Moral of the story: Do more valuable tasks, instead of doing less valuable tasks efficiently or smartly. Doing something unimportant well does not make it important.

This is how the world is today – it’s the new normal. The companies that win are the ones that innovate 10X and ‘change the game’. Not the ones who innovate incrementally. As Peter Thiel says in his book, don’t move an industry to greater efficiencies (i.e., from 1 to 1.1). Focus instead on moving something from zero to one.

[Tweet “Do more valuable tasks, instead of doing less valuable tasks efficiently or smartly.”]

Look at the biggest companies around us – Google (search advertising), Apple (iPhone), Amazon (e-commerce, e-books, etc.). They didn’t just improve search algorithms, build a better phone, or sell books through a simpler distribution chain. They revolutionized their respective industries. Not by doing things differently or more efficiently, but by doing different things.

And it’s not just companies – it’s visible in every aspect of life. No longer can you say, “Karm kar, phal ki chinta na kar” (“Work hard, don’t worry about the result”) in all honesty. If the recipe sucks, it doesn’t matter how good a cook you are.

[Tweet “If the recipe sucks, it doesn’t matter how good a cook you are.”]

This may be bad news. But it’s good news as well. Once you start looking for this ‘focus on the numerator’ behavior everywhere, you can make more valuable decisions about your company, your products, and your time.

A few examples of the implications, off the top of my head:

Product Management: Instead of A/B testing and optimizing your nth new feature, focus on getting more people to use your product. Andrew Chen puts this well in a recent article.
HR: Instead of trying to getting the best out of your team, learn how to build a better team. [This is more important in technology businesses, and less so in traditional brick-and-mortar companies.]
Health: You can try to manage your cholesterol by eating french fries cooked in refined oil or unsaturated oil or whatever the flavor of the season is. Or, you can just stop eating french fries!
Personal Finance: Focus on earning more, not spending less. A direct corollary of the revenue-profit point I made earlier. It’s ironic, but I’m the prime target for this lesson. As a Tam-Brahm, I started expense budgeting almost before I could walk. I’ve spent countless hours balancing my expenses, tracking my receipts, and strategizing lower spends, when I could have instead focused on doing more valuable things. Which means anything else, basically.
Personal Productivity: Be effective, not efficient, as Tim Ferriss says in The Four Hour Work Week. Do two important things, instead of 10 unimportant ones. Again, a slap on my face – so far, I was firmly in the ‘get more out of your day‘ brigade.

TL:DR: In work as in life, we should strive hard by all means. But we must think hard first – is what I’m doing the most valuable thing I could do? Let’s build more important things, instead of optimizing our lives away.

What do you think? Are there any other examples of ‘focus on the numerator’ behavior? Drop me an email at [email protected], comment here, or tweet at @jithamithra.

[Note: This article first appeard in Yourstory.]

Your Minimum Viable Product can be more ‘minimum’ than you think

jithaJuly 28, 2015 7 Comments

[A slightly abridged version of this appeared first in YourStory.]

Minimum Viable Product, or MVP, is sure to show up in any startup glossary. It would be the first word in the glossary if glossaries weren’t alphabetical. And like most other jargon, it is often misunderstood.

But before we get into that, let’s come up to speed on the popular notion of the MVP.

An MVP, or Minimum Viable Product, is the most basic version of your product that still delivers your core offering. You build a bare-bones product fast (emphasis on ‘fast’), so you can get validation early before investing more time and money. Thus, the product needs to be as ‘minimum’ or basic as it can, but it also needs to be ‘viable’ – i.e., it still needs to solve the one problem it was created to solve.

Aiming for an MVP helps entrepreneurs (especially first-timers like me) avoid the rookie mistake – building too much product before validating market need. We all want the ten revolutionary features in our first version. But not only will these features take five extra months to build, most users will also not see them.

So that’s the concept of an MVP – sounds simple, right? I thought so too. I congratulated myself many times as I built my first prototype in three months, found that people didn’t need it, and junked it. And again when I built my next one in four months, tested it out over the next three, and pivoted it to its current form.

But when I took a step back recently, a thought struck me, “Four months to build an MVP? Sounds excessive.” We’d done all the right things – cut the feature bloat, honed in on the two key functionalities, and built them. But that’s how long it took. Notwithstanding my obvious bias, we couldn’t have done it in less than three months.

From talking to other entrepreneurs, I see that this is a common conundrum – why does the damn MVP take so long?

The reason is that we’ve got the notion all wrong – for all but the most tech-intensive products, you don’t need to ‘build’ an MVP. You just need to ‘put it together’. And this often doesn’t need much coding at all.

Let’s say you’re starting a website that offers personalized fashion tips. You can launch in one day or less – you don’t need the full website right away.

Buy a domain – 3 hours. [Hint: The name doesn’t matter. But we know you’ll take the time. And buy five domains.]
Build a one-page website with LeadPages, where people can upload photos or ask questions – 1 hour. No need to create an account or browse any content – they can ask fashion-related questions, and you can email your replies.
Or, you know what? Ditch the website. Just have a number that people can Whatsapp their snaps or questions to. 1 hour [for you and your co-founder to fight over whose number to use.]
Run a small Facebook campaign publicizing this site / phone number. Or tell ten friends, and have them each tell ten more. That’s your test audience. 2 hours.

Thus, you can be up and running tomorrow – even if you’re slow because this is your first time. What are you waiting for?

[Tweet “You don’t need to ‘build’ an MVP. You just need to ‘put it together’.”]

I know what you’re thinking – why should we listen to this guy? What has he done?

I’ll tell you what he’s done (yes, it’s normal to talk of yourself in the third person). He’s compiled a list of companies that hacked together an MVP. You may recognize some of them.

A. Started with an incomplete product

Zappos is a US e-retailer specializing in shoes. When it started, the founders visited a few shoe stores, took photos of their merchandise, and put them on their website. When customers purchased the shoes, they would buy them from the stores and ship them.
I’ve heard this about Flipkart too. At the beginning, they went out and bought books themselves when they received orders, and couriered them.

Back then, they still had to build the e-commerce website. Today, with Shopify, you can do even that in a jiffy.

B. Started by combining existing products

Angellist is a LinkedIn for startups – a marketplace that connects startups and investors. How did they start? Their MVP was good old email. They made intros connecting a startup looking for funding to an investor looking for investments. That’s it!
Amazing Airfare helps you find ridiculous bargains on airfare. The company put together its MVP with text messages, PayPal, Excel, and email. No code.
Saralmarket is a fruit procurement company. They don’t have an ordering website or complex prediction algorithms. They use Whatsapp to send out market rates and take orders.

C. Started without a product (!)

DropBox started as… a video! No product – just a clip of the founder shifting files between folders. Interested people could sign up for updates. And tons of people did, so this was strong validation.
1. Wait, there’s no product! So how can this be an MVP? You’re right – this may not be an MVP. But it is a great example of how to validate your product without a single line of code.
Kickstarter campaigns do exactly this. You put up interesting product ideas before you build them. Others demonstrate their desire by supporting you. Validation complete – go build the product now.
Buffer, a tweet-scheduling tool that manic tweeters swear by, also started as a two page website ‘MVP’ – the user could see what Buffer would do, and could sign up to learn more. When several people signed up, Joel Gascoigne knew he was on to something.

We’ll see more and more of this, as social media makes it ever easier to test your product. Even when it doesn’t exist. As Ryan Holmes (CEO of Hootsuite) demonstrates, you can simply ask Twitter.

This list can go on. But I’ll stop here with an anecdote. A friend told me a couple of weeks ago that he had a great business idea. He’d planned it in detail – he already knew the 12th feature he’d introduce in month 22. But he hadn’t launched yet – seemed too daunting. So this is what we did – we took one of these to-do books (check them out – the irony is delicious), and made a list of starting tasks. It wasn’t that long – only three items, one of which was finding a name – which he had, so we ticked this with a glorious flourish. You’ll hear from him soon.

I hope to build many MVPs over my career, so any lessons from your experience would be quite handy. Mail me at [email protected], tweet at @jithamithra, or comment here.

What strategy consulting for big businesses taught me about… starting up?

jithaJuly 13, 2015

[This article first appeared in YourStory.]

Strategy consultants are a much maligned lot in the startup and business world. Over the five years I spent at the Monitor Group (a strategy consulting firm started by Michael Porter), I heard various complaints:

How can a young consultant say anything useful to an industry veteran?
What’s the use of a plan that’ll take five years to execute?
Consultants don’t do anything except make slides.
You don’t know how to make decisions. Sure, you can advise people…
You never put your money where your mouth is. (I think Paul Graham meant this, when he called management consulting a version of ‘gaming the system’).

I heard many such comments during my tenure, from friends, relatives, and chatty fellow travelers on long flights. And seeing how we addressed these complaints at Monitor – while advising large conglomerates in established industries, paradoxically enough – prepared me for starting up.

1. It doesn’t matter who you are or what you know. You need to have a hypothesis, and be ready to learn.

When I started in strategy consulting, the first thing that struck me was the novel, hypothesis-based approach.

Hypothesis-Based Approach

Coming from an engineering background, I was used to the deductive approach – start from what you know, and proceed towards conclusions. But a hypothesis-based, inductive approach starts from the other end – you make some predictions, and then proceed to test them (and modify them as needed). This data-driven learning approach is a great complement to industry understanding. That’s why companies hire strategy consultants – to hold up a mirror to their beliefs, test them, and help company executives understand how the industry’s evolving.

Performing this process – of making predictions, being proved wrong, and correcting them – repeatedly over multiple projects gives you a healthy appreciation of your own ignorance. I’ve found this invaluable when starting up – I may not know the right answer, but I know how to test my beliefs and work my way there.

[Tweet “I may not know the right answer, but I know how to test my beliefs and work my way there.”]

2. You need to be OK with uncertainty.

One of the differences between strategy and operational consulting is the timeframe – strategy is more long-term. The industry trends you bank on may play out over 3-4 years – some may not have even started yet. So there will be ambiguity. But you still need to make some bets, and find creative ways to validate (or invalidate) them – talk to industry experts, observe trends in related industries and evolution of similar economies, etc. But none of these will give you the perfect answer – you need to ‘satisfice’. Thus, not only do you not know the answer starting out, but you also may never know the answer with certainty.

And it’s the same at my startup – I don’t know if my product is going to be loved, hated, or worst of all, ignored – first by early adopters, then by followers, and then the rest (if I get that far). But I’ll keep plugging away, and figure out ways to run small tests often to ensure I’m on the right track.

3. Serving your clients’ needs is your foremost objective.

Ignoring the double entendre for a bit, client service is the priority in consulting – I heard this all the time from Partners at Monitor. Whether it’s sudden weekend work or an ill-timed field visit, you do it if it benefits the client.

Today, I have a consumer-facing Android app. Every once in a while I get a caustic review, or a needlessly harsh 1-star rating. But it’s not my place to rail against unreasonable users – if I focus on serving them well, then I hopefully won’t have to worry about these ratings in the future.

4. Brevity is the soul of communication.

Naysayers are true when they say consultants make a lot of PowerPoint slides. Boy, did I make a LOT! But the thing about slides is that, unlike a Word document, there’s limited space. So you need to make your point succinctly. And you need to say first up why that message is important (or as they say at Monitor, you need to bring out the ‘so whats’).

I’ve done my 10,000 hours of slide-making. I’m still far from a genius at it (Gladwell was wrong), but knowing how to deliver the key message upfront and in as few words as possible is a very useful skill at a startup. Whether it’s in crisp emails to potential clients, high-impact copy for Facebook ads, or elevator pitches to investors with short attention spans, brevity is invaluable to startups.

5. Ideas are worthless. Execution is key.

I know this sounds very ‘global’ (and it is – I won’t lie), but project after project has taught me that the best-articulated strategy can stop making sense once you start implementing. There was one case where we designed the strategy and left, and the client came to us after a few months saying everything is shot to hell and can we please come back and help them. We could definitely have done better – it was our responsibility to devise a plan that the client could implement, and explain it to the client’s team.

But the larger learning for me was that your plan doesn’t matter so much; it probably wasn’t rocket science to begin with. But you need to be able to execute on it effectively. It needs to be ‘actionable’.

[Tweet “Your plan doesn’t matter – it probably isn’t rocket science. You need to be able to execute on it.”]

In the same article where Paul Graham says that management consulting is gaming the system, he also mentions the similarity to college. And while I may not fully agree with his first comment, his second is spot on. A strategy consulting firm is one of the best finishing schools you can go to, if you want to build a business of your own someday.

What do you think? Did these learnings resonate with you? And did I miss anything? I’d love to hear what you think – mail me at [email protected], tweet at @jithamithra, or just comment here.

The Barbell Strategy, or how you can have your cake and eat it too.

jithaJuly 6, 2015 2 Comments

[A version of this article appeared on YourStory last week.]

One of the tenets that stock market investors live by is diversification. As their advice goes – if you invest in several (uncorrelated) stocks, you reduce the risk of a sharp fall in one stock damaging your income significantly. An extension of this argument is that traders should maintain a mix of low-risk and high-risk assets in their portfolio; even if the risk materializes and your high-risk assets blow up, you still have some income. This is called the ‘barbell strategy’.

This is a very useful concept in stock investing. But can we take advantage of this in other businesses?

Before we try and answer this question, let’s understand the ‘barbell’ concept a little better.

The reason this investment strategy is called a ‘barbell’ is that all your investment goes to the two extremes of low risk-low return and high risk-high return, much like the weight of a barbell is concentrated at its ends.

Thus, you deliberately plant your feet at both ends – low risk and high risk; low payoff and high payoff; short-term and long-term.

Sounds like a great investing idea – limit your potential losses, even while pursuing high-risk investments. But, you may ask, how does this help those of us not in the financial sector? If you’re not a trader, how can you take advantage of diversification in general, much less a ‘barbell’?

There are several different avenues of business where a barbell approach can help cover downsides, and allow you to test new channels of growth.

1. Startup Marketing: There are several different channels through which you can market your product (Traction, an excellent book on the subject, lists 19!). But not all of them are equal – channels like TV advertising, SEO, and viral growth have a high ceiling on saturation (i.e., you can acquire millions of users through these channels), while others (PR, social media, community emailing, etc.) are far less scalable. But there’s a flipside – the former ‘moonshots’ are also more expensive, far more risky, and take longer to optimize.

When you’re selling a new product, you should definitely explore some of the moonshots – if any of them work, they can make your company’s destiny. But you should also invest in the more near-term, less-scalable channels, to ‘keep the wheels turning’ with a small flow of users. This also gives you time to perfect your product and plug the leaks in your user acquisition funnel, so that when one of your moonshot experiments suddenly delivers a deluge of users, you are able to effectively retain them.

Andrew Chen has written an excellent article on this. And Paul Graham refers to a similar concept when he says, “Do things that don’t scale.”

2, Short vs. long-term value propositions: Sometimes, startups also need to bet on a combination of short and long term opportunities. Your product vision may be very ambitious, but you often can’t offer that proposition from day one. In fact, the more ambitious your vision, the longer it will take to start delivering it. So, if you want to survive long enough to achieve your dream, you need to sell something else till that happens.

A great example of this is Zomato – they started as a pure-play information source on restaurants around you. Gradually, as the user base grew, they began overlaying restaurant promotions. Now, they’ve just started an even more lucrative food delivery service. And I bet they’ll add other services soon – allowing you to book a table, pay for your meal through the app, etc. (I predicted this in an early March blog post, maybe 10-15 days before they started the food delivery service :P).

3. Multiple product lines: More mature businesses also employ the barbell strategy. They often have one-two cash cow product lines, which they can milk till the cows come home (I had to take the metaphor to its conclusion, didn’t I?). This gives them the freedom to invest in potential breakthrough products – many of these will fail, but a few will succeed and make up for all the losses and more.

Think of skincare brands – they all have some stable products like fairness creams and face washes, and periodically introduce more cutting edge products (e.g., anti-aging elixirs) to test the market.

4. Your own entrepreneurial career: The above examples are at a company level. But even individuals can employ a barbell strategy. For example, I have a startup, and have been working on a couple of products for 2 years now. At the same time, I also do some freelance consulting, and am about to run a taxi on Uber / Ola. Not only does this small but steady income give me the staying power to explore more opportunities at my startup, it also gives me a reserve to tap into, should any of my experiments work and I want to step on the gas. You may say I’m hedging. I don’t disagree, but I’ve found this safety net invaluable – I can apply myself to my venture in the best frame of mind, without worrying about a fast-falling bank balance.

This is similar to the entrepreneurial system that Scott Adams talks about in his book. And James Altucher has often spoken about how rich people have 7-10 different income sources.

Thus, you can employ the barbell strategy in several different situations, to reduce your risk even as you take on high-risk opportunities. And that, ladies and gentlemen, is how you can have your cake and eat it too!

I’d love to hear what you think of the barbell concept. Can you think of any other applications? Comment here, drop me a line at [email protected], or tweet at jithamithra.

Have a great business idea? Don’t quit your job yet.

jithaJune 9, 2015 1 Comment

A friend called me out of the blue a few days ago, and said he had a great business idea. Before I could get a word in edgeways asking him what it was, he blurted “And I’m quitting this Friday.” As I controlled my surprise and readied to respond, I flashed back to the time when I quit my job, two years to the day.

I first got an idea for a new venture about 6 months before I quit. My co-founder and I spent a couple of months testing the idea with friends working in the target sector. Once we got feelers that we may be on to something, we spent another 2 months finding a good guy to helm product development. And then we started building the product. By the time I quit, we had a prototype ready, and our website also went up the same day – I could proudly mention it in my farewell email.

Less than 6 months later, we shut the business down (surprised you with the shock ending, didn’t I?). As we pitched the offering to prospective clients and started a couple of customer pilots, we saw severe structural limitations to the idea, and decided to shelve it. As the military saying goes, “The best laid plans seldom survive first contact.” Or to quote this generation’s premier philosopher, Mike Tyson – “Everybody has a plan, till they get punched in the face.”

All of this is to say – there’s a lot of uncertainty when you’re starting up. And while the uncertainty will never go away, there’s a lot you can do while still at a 9-5 (or 9-8 in case of this friend) job to answer the most primary question regarding your startup – is there a paying customer who’ll find value in your service?

1. Build out the product concept

Outline clearly what the product will do. This will be very useful later when pitching customers, but it is also important at the initial stages to make sure you’ve thought of all sides of the idea. If you have a co-founder, then it helps make sure you are on the same page.

You also need to think about the concept at different levels – now that you’re going to execute on an idea and it’s not just a castle in the air, you need to descend from your 20,000ft view. I found it useful to do these three things:

First develop a 30 sec elevator pitch
Then dive a little deeper, and think about a 2-3 min description of the product and its benefits
Develop a 5-10 min presentation on the product – at this stage, you’ll start detailing how you plan to successfully and scalably deliver your value proposition.
1. This can be in any format, but I find making a PowerPoint presentation an incredibly useful cure for a muddled mind.
2. You can use the template below to sketch out your product concept and business model – it ensures that you think through all the elements of your business model.

Based on framework from strategyzer.com

2. Test the product concept with prospective customers

Unless you’re building a visionary product that people don’t yet know they want (are you the next Steve Jobs?) or there are strong reasons to be in stealth (e.g. Siri), you must absolutely talk to a lot of customers or industry experts. You’re not selling anything yet – this is more about validating the idea itself and ensuring that this is something people would pay for.

I would hesitate to put a number to these interviews – it really depends on the space you’re in and where in the value chain you’ll play. But, roughly speaking, let’s say at least 50 customers in case of a B2C product, and 5 in case of a B2B one.

The aim should be to rapidly iterate on the idea and improve it. For instance, when we were validating our idea, there were times when we would meet one person, return home and change the pitch, and then go to the next meeting. Such early conversations are invaluable in refining your idea significantly, before you spend a single penny on development.

You should also use these conversations to test your financial assumptions. How much would people pay for this product? How much would it cost to acquire the customer – distribution costs, marketing costs, etc.?

Let’s stop for a bit – at this point, all you’ve done is understand your idea, and test it with a bunch of people. No need to quit yet. But let’s move on.

3. Design a strawman / prototype

Once your customer interactions show that your idea has legs, and you refine your idea with customer inputs, it’s now time to design the product. You’re not actually building it right now – you’re just giving your product concept some form and shape. You can use Just in Mind for this – this tool allows you to draw out your product’s different features, and create the usage flow (I used this tool to create the first design for my current app). For example, if you’re building a mobile app, you can create a series of screens with the rough functionality you envisage. You can also map buttons to specific other screens – so that when you’re showing the prototype to someone, you can also demonstrate how the app transitions will take place.

Doing this can be challenging – it’s the first time you’ll be doing something concrete about your idea (and even more so if you’re a first-time entrepreneur, like I was). But if you don’t start enjoying it soon, then that’s a valuable learning too – maybe you’re not yet ready for the uncertainty and vagueness of starting up.

4. Test the prototype with customers

Once you’ve built the prototype, you hit the road again. Test it with the same or different customers – would they actually use this product? How much would they pay for it? You’ll learn a lot – just like creating a concrete design helped you clarify your own thinking on the product, users will give more actionable feedback when they can actually see the product in some form. All of which will improve the first version you launch significantly – without quitting your job yet.

5. Build out your initial financial model

I’m biased towards drowning in large excel models, and therefore I hesitated to put this down – is it really necessary so early on? But on second thoughts, it absolutely is. Not only does it help you acknowledge your assumptions, estimate the cash burn rate and plan your runway, it also gives you one more concrete element to test in the market – running this by customers can again help you verify that your business is attractive. And as long as your assumptions reconcile with user opinion, you can continue to the next stage – developing the product itself.

6. Start developing an MVP

Assuming the previous steps went well (i.e., people liked the product and you liked the experience), you then start building the Minimum Viable Product, or MVP – the most basic product that fulfils your core value proposition.

If you’re the technical lead, then this may be the time to quit your job – but only if you can’t manage this in addition to your regular job. And if you’re not the technical lead, then there’s still not enough for you to do at the venture to justify quitting. Spending your weekends working with your team and meeting customers is more than enough. In my case, our tech lead worked closely with a couple of freelancers to build an MVP – while it wasn’t ready yet by the time I quit, we were more than halfway there. (There may be divergent opinions regarding using freelancers / outsourcing initial tech, but let’s leave that for another day).

An advantage of hacking together an MVP quickly is that you can validate and refine your product much faster, which brings us to the next point…

7. Test the MVP with initial pilot / alpha customers

The next step is to share this MVP with some of the customers you spoke to in the previous steps, and see how they use the app. You’ll find that if you did the previous steps correctly and the customers are indeed captured by the product vision, they’ll forgive a lot of UI issues, buttons that don’t work, etc. – as long as the core value proposition is delivered satisfactorily.

[Tweet “As long as your MVP delivers your core value proposition, early users will forgive everything else”]

Only once this MVP works do you really need to quit – before this, there’s more than enough time on the weekend.

Thus, there’s a lot you can do to get your product off the ground before you even quit your job. In retrospect, I think even I quit too early. I could very easily have continued working till the time we found that the idea didn’t work!

Now, delaying your resignation is certainly easier said than done. I had a very supportive employer, and I could keep my boss in the loop from the very beginning. As long as I fulfilled my responsibilities at work, no one had a problem with my moonlighting. But other companies may be different, and I can easily imagine cases where this may be frowned upon.

Another factor that could make juggling everything difficult is the intensity of your day job. If that itself requires you to burn the candle at both ends, then you may not have any energy left to fuel your own venture. In such a situation, you may need to take a leap of faith, and take a short sabbatical (if you have a great equation with your bosses) or quit with the confidence that you’ll find another job if your venture doesn’t succeed.

And of course, there is the mental angle – most of us, to begin with at least, can’t compartmentalize our different roles. In such situations, one may feel that cutting a bond, however tenuous, with the previous employer is critical to fully seizing the new opportunity. So it’s definitely not as simple as I make it sound.

But to tilt the scale yet again, there are a few more underrated benefits of quitting later.

If your entire career thus far has been a salaried job, a clock will start ticking in your head the day you quit – especially if you’re paying a salary to your team. It makes a difference whether you’re paying this salary out of your (paltry) net worth, or from your own monthly salary. This happens to the best and best-paid of us – there’s no escaping it. Delaying your exit till a time when your product value proposition and customer validation are more solid can do a lot to assuage those frayed nerves.
This cash in hand aspect is particularly important early on, when you’re still experimenting. Having a fixed cash inflow gives you the staying power you need to try different value propositions, business models and consumer interfaces. Otherwise, every next experiment will pinch you – not the best frame of mind to unleash your creativity. In my case, I had already quit when my first idea failed! So I went back to working as a freelance contractor for 1-2 days a week, to fund my next product and keep me in the game.
You’ll have to work very hard initially, juggling your job and startup. Those few 100 hour weeks, working yourself to the bone, will tell you whether you’re really passionate about your venture, or just interested in the hype!

What do you guys think? Do you feel it’s hard to work on your business idea while also doing a day job? Would love your perspective – mine’s based on only a few sample points. Comment here, email me at [email protected], or tweet at jithamithra.

Thanks to Abhishek Agarwal for providing inputs on an earlier draft of this post. And for sharing this excellent article, on the same theme. Just as I was ready to publish this post 😛