Test first, build later
Oz Porat, Founder & CEO of Genly, explains why and how to test the value proposition of a product out in market with real customers first before investing time and money into actually building it.
Knowledge Traction brings you bi-weekly curated insights about early stage company building from founders that have already gone through it.
Startups make many assumptions around their value proposition and target customers for both their initial product and new features. And many quickly move into building their product - often with little to no real world testing. However, if you don't test your real offer in the real world with real customers, you will likely not find out if you are delivering real value until the product is released. Thus, before going out and investing a lot of time and money into building a fancy software solution, make sure to understand the value of your proposed solution to your potential customers by actually selling it in the real world (by it, I mean sell a value, not a software or product). Only then will you get tangible feedback.
Today’s insight is from: Oz Porat, a serial entrepreneur and most recently the Founder & CEO of Genly, a digital online advertising platform for B2B businesses.
At the core of entrepreneurship is the concept of customer value exchange - the sales transaction between your company and its customers: your company creates value for your customers and they pay for it.
For this transaction to happen, you need understand your value proposition and truly deliver value to your customers - i.e. “when somebody is using your product, what value are they getting out of it?”
While this sounds very basic and intuitive, a common pitfall across early stage entrepreneurs is that they have an idea for an exciting product and go out and build it - oftentimes without doing the basic work up front. Specifically, they neglect to fully understand first:
Their customers’ actual (detailed) pain points and / or the job to be done (i.e. customer discovery)?
The customer journey and where they can have an impact / what their customers are getting from using their proposed solution / what the actual value is they are delivering to their customers and where / how (i.e. customer validation)?
Before going out and investing a lot of time and money into building a fancy software solution, go out and sell a real outcome or service to real customers in the real world. Only then will you get tangible feedback on whether you’re actually delivering value.
For example, build a landing page, onboard clients and do a lot of the work to deliver value manually behind the scenes as Paul Graham put it in his famous 2013 essay Do Things That Don’t Scale:
There's a more extreme variant where you don't just use your software, but are your software. When you only have a small number of users, you can sometimes get away with doing by hand things that you plan to automate later. This lets you launch faster, and when you do finally automate yourself out of the loop, you'll know exactly what to build because you'll have muscle memory from doing it yourself.
[…] Some startups could be entirely manual at first. If you can find someone with a problem that needs solving and you can solve it manually, go ahead and do that for as long as you can, and then gradually automate the bottlenecks. It would be a little frightening to be solving users' problems in a way that wasn't yet automatic, but less frightening than the far more common case of having something automatic that doesn't yet solve anyone's problems.
There’s no excuse not to do so - for example with all the no-code / low-code tools out there today, it’s become very simple to spin up a basic version of your product and test it in the real world (ideally, this product is a Minimum Lovable Product instead of an MVP).
While doing so, make sure to define what success looks like up front and measure / quantify it - numbers don’t lie and help avoid confirmation bias.
On the flip side, if you don’t do your homework upfront, you risk wasting a lot of time and money on building a product that doesn’t deliver much value to anyone - time and money you don’t have as an early stage startup. Oz learned this the hard way when one of his companies spent $3M on building a software product based on hypothesis that ended up being wrong, forcing the company to pivot back into the market need, and lose a lot of time and money along the way. He should have used an excel-powered / fairly manual solution first to test the value proposition.
Also, it’s much easier to build a product when you understand the actual value you’re delivering.
Thus, before putting any resources into building a product, get real market validation first - even if it involves a lot of manual work (that doesn’t scale). The closer you can get to feeling / seeing / hearing the value being traded in a real world experience (not your mind), the closer you are to building something that will likely be a success. Or as Oz puts it: “Entrepreneurship is not an invention, it’s a discovery process - and the more you’re focused on the discovery process, the better you get at entrepreneurship”
How Oz and Genly do this in practice:
Get market validation first, then put resources behind it: Nothing at Genly gets automated with software before it's adding value to clients already - for all of their new products / features, they try to understand what the end product that they want to sell is and then start selling it to clients without building software first. Instead, they do the work manually and automate it once the value is proven out.
Real need, real traction: Numbers speak louder then words - in order for anyone at Genly to prove the value of a product, an abstract conversation with three engineers thinking about what the future looks like is not enough - they require real numbers around “x clients are spending $ on this product already” before they go out and build it.
🙏 Thank you for sharing this insight Oz!
📖 - Reads
Instead of reading, Oz recommends you focus your entire time and attention on speaking to your customers to understand the value you provide to them better
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