Empower your logistics business with the customer development funnel for logistics

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Stanford University in this video I'm going to talk in more detail about the customer development and Lean Startup process last time we talked about how entrepreneurship is a discovery process and we talked about looking for a methodology that could take us from the unknowns of what should the product be who should the customers be what market are we addressing to no answers to these problems and questions so we talked about using a version of the scientific method that starts with a problem forms a hypothesis figures out some experiment to run the test that hypothesis and then uses that knowledge to then inform whether to slightly modify or change the hypothesis or whether we have this piece of the model confirmed and can move on to testing some other piece of the business model so we talked about how entrepreneurship is a search process and a learning process where you want to discover facts that you didn't necessarily already know and use those to inform the business model and so how is this how is this different what's the traditional product development model traditional product development model comes out of larger companies that are primarily in known markets and have known products and so historically most entrepreneurs tended to have a lot of work experience and large companies and a lot of background industry knowledge before beginning and so they tended to follow this process which looked more like this that started with a set of requirements for the product that were generally developed internally in the company those are then used to create the design or the architecture of the software or the product engineers and programmers would then spend a lot of time developing and building this product and it would then be put into a phase of testing delivery and feedback and so this works out all right if you're a known and in a fairly mature stable industry but if you're in a more dynamic rapidly changing industry then you can't really wait until the very end of this process to get all of this customer feedback after you've already sunk the costs of building and developing the product and used up all that time this traditional product development model is known as the waterfall what we want to change this to is something that's more agile that's quicker that allows us to learn at a faster pace and for cheaper so this is what we want to think about with the business model with each of these pieces whether it be the product development or whether it be figuring out who the customers are or who the key partners or what the revenue model should be we need some process that's going to allow us to discover these things more rapidly and at a cheaper price so last time I left you with the questions of looking at your business model and thinking about where the risk is and where you should begin trying to reduce it and so I told you to think about your own venture and to think through which aspects of it are the most uncertain where you might want to focus your initial experiments and tests and so we talked about the scientific methodology that began with asking a question and then move to doing some background research and formulating our hypothesis so how do we move this into the startup context so the first question you might be asking yourself if you're thinking about how to apply this is how do you do background research and startup context there are no existing journals or papers that you can go and read a scientist might so do you look on Google are the answers in books probably not in industries with knowledge about customers and products these things aren't usually recorded and written down in the usual ways and so the facts that you need are outside of your building you can't get them in the library or by simply thinking through these things you have to actually go out there and talk to customers identify who the key industry veterans are and see if you can get them as mentors you want to talk to potential partners and see what they think about your plans and ideas because all of this has to fit together and so in this way we can go about starting to design some experiments once you've done a bit of this background research then you can use these industry veterans and these mentors as a kind of equivalent to the peer review process and science and so they're going to keep you honest they're going to help you design the experiments and interpret the results of them and so I want to emphasize again this key process of realizing that you've had a failed experiment or false hypothesis and trying again with a new experiment a different hypothesis what we call pivoting so I want to play a brief video where Steve Blank is talking about the importance of developing this kind of deep customer or understanding and so this is Steve Blank a retired serial entrepreneur and let's just listen to a couple of minutes of video that was recorded here at Stanford the most radical thing I make companies do is actually sell the product in a web product you could decide your going for eyeballs for users you can go for ads or you can actually decide to do something radical and actually charge money for something or for a physical product that's almost a given before we do anything let's see if the founders could go out not a sales team but the founders can go out and generate some revenue of this company that's what I call customer validation I want you guys to actually sell something how many of you were in engineering okay okay how many of you I've actually sold something okay not just a pencil not Girl Scout cookies not you know Tina asked me earlier what was the best advice I think I've ever gotten or given and that was even if you're an engineering if you decide you're gonna be part of an entrepreneurial startup if you've never been out trying to sell your idea or be part of a sales team you will never ever be a great entrepreneur ever I really want to get all of you angry who are great engineers wrong the great architect greater that's great but you'll always be dependent about on someone else great engineers understand what customers need I don't mean you need to you know learn how to go to dinner and drink and whatever but you really do need to understand how people buy why they buy how they process information and how they think about your product and also how they think about the problem you think they have you want to think about how to design your experiments how to test these hypotheses that you're developing about about the pieces of the business model so the first thing is you want to consider the ordering you want to go about this and prioritize these experiments in such a way that you do the lowest cost quickest way to verify or falsify your hypothesis and so this could be building front-end to the website and showing it to a bunch of people it could be buying Google Adwords and seeing how many people click on your idea for a new product it could be asking customers for money in a couple of different ways maybe one model that's a subscription one model that's a one-time fee and in this way you test out what type of revenue model might work for the business but you want to start with the highest risk areas and start with the cheapest and quickest experiments that you can run so why is this so difficult I'm giving you a process and this process has been taught around Stanford for a while now why is this so hard partly this is difficult because of just pure innate psychology as we spoke about last time even in science the actual scientific method often gets substituted for the actual method which looks a bit different because people are in a rush to try and produce results to try and prove a particular hypothesis that they desperately want to be true and all of these things are even more true in an entrepreneurial context when you're running out of money and you need to develop a product you're going to be in a rush in a hurry to move through this process and so then that's going to start making you want to cut corners in the process and this is also hard because entrepreneurship is essentially a balancing act and what do I mean by that how is it a balancing act it requires being both flexible and being persistent and rigid you have to be simultaneously optimistic that this can work and also paranoid about all the things that can go wrong and so the very things that push people to become entrepreneurs because they're optimistic about a new idea or because they like a more dynamic flexible environment also tend to push entrepreneurs to fail because if you're too over optimistic if you're too far on this end of things then you're not gonna realistically look at the feedback that you're getting from customers you're not going to think critically about where you might be wrong or if you're too flexible then you may go from one idea to the next too quickly and never stay in one area long enough to really develop anything substantial the other hand if you're too pessimistic you never get started in entrepreneurship in the first place you have to be persistent because entrepreneurship is a lot of ups and downs and struggles but if you're too persistent you stick with the wrong idea for too long before moving to something that will work so entrepreneurship is a real balancing act where somehow you have to wind up psychologically in the middle here between being too optimistic and too pessimistic between being too flexible and too persistent so we know this from research as well there was a study done of over 200 entrepreneurs and this predicted the both revenue growth and the employment growth of the venture as a performance metric and so we have some control variables and we have some main effects and so this paper was trying to test the effects of optimism primarily on venture performance and we see overall that optimism is negatively related to venture performance so if you're to over optimistic if you're to over confident that this is going to work you tend to have lower performance they also looked at the moderating effects of experience as an entrepreneur and how dynamic the environment was is this a highly dynamic new industry or is this a mature stable industry so you might imagine in a more dynamic industry things are more uncertain so we see the main effects are that experienced entrepreneurs tend to do better so it's good to have a serial entrepreneur on your team and entrepreneurs tend to do better in a more dynamic environment startups thrive in an area that's new and uncertain whereas large companies thrive in an area that's more mature and stable the interesting thing is to look at the interaction effects so for an experienced entrepreneur the more optimistic you are the more negative the performance so this effect is exacerbated of over optimism if you become too overconfident as a serial entrepreneur and also in a more dynamic more uncertain a more turbulent environment being more optimistic also hurts you even more so if the environment is very dynamic it's better to be a bit more paranoid a bit more on the lookout for what could go wrong and then experience helps even more in a dynamic environment experience helps you but the more turbulent things are the more that experience comes in handy really interesting thing is the three-way interaction if you have an experienced entrepreneur in a dynamic environment then being more optimistic hurts your performance and so this is at least some evidence that being too over optimistic in a venture hurts you and that can help to be slightly paranoid because you can better interpret the results of these experiments and see where you need to change course so the second reason why this is difficult is what tends to happen when the experiment fails when the hypothesis is shown to be untrue or at least partially true one common reaction is for the entrepreneur to say ah that customer didn't get it let's find a different one they just don't understand what we're doing that's not our target market and so you can continue on like this on the other hand if the experiment fails it's more difficult to say oh wait something was wrong in our hypothesis but we didn't fail we learned something it's more difficult to be persistent in that you want to keep moving forward but also be flexible enough that you're willing to slightly change direction when you see something isn't working so holding these two ideas in your head at the same time whether it be flexibility and persistence or optimism and paranoia are there key difficulty for entrepreneurs and why this process is so hard that's it for this video for more please visit us at stanford.edu