The First Step in Entrepreneurship Is to Confirm Customer Needs—Every Detour Can Take You Farther from Your Original Goal

Why Startups Fail—Part 2 A False Start The author has always believed in the lean startup method. But the more deeply he studied startup failures, the more he found that practicing lean startup was easier said than done. Many entrepreneurs who say they use lean startup actually apply only part of it. Specifically, they launch a minimum viable product (MVP), get feedback, and iterate rapidly. Testing customer reactions this way is meant to avoid wasting time and money building and promoting a product nobody needs. But if founders neglect research into customer needs before starting design, they may still waste precious time and money on a failed MVP. That is a false start. These entrepreneurs are like runners jumping the gun before the starting signal: they are too eager to put a product on the market. For example, lean startup’s advice to “launch early and often” and “fail fast” can, in practice, encourage shooting first and aiming later. Triangulate experienced this in 2010. Its founder, Sunil Nagaraj, wanted to build a dating-matching engine and license it to dating sites such as eHarmony and Match. With consumers’ permission, the engine would automatically pull profile data from social networks and media services such as Facebook, Twitter, Spotify, and Netflix. Algorithms would gather information about people’s tastes and preferences to match potential romantic partners. To demonstrate the engine’s potential to prospective licensees, Nagaraj decided to use it to build his own dating site—an application that could draw on Facebook’s enormous pool of third-party user data. Venture investors became interested: Nagaraj raised $750,000 and launched a dating site called Wings. It was free to use, with revenue coming from small fees for digital gifts or messages. Wings soon became Triangulate’s main product. By linking to services such as Facebook, Wings automatically assembled large amounts of user-profile information. It also encouraged users to invite friends to act as “wingmen,” supporting them on the site and spreading the word to drive growth. Yet less than a year after launching Wings, Nagaraj’s team abandoned both the matching engine and the wingman concept. Users found matches based on a potential partner’s physical attractiveness, location, and responsiveness to messages more valuable—the same standard criteria used by existing dating sites. The wingman role did not deliver the rapid growth the team expected. It also made the site too complicated and hard to use. Many users were embarrassed to have friends looking in on their romantic lives. A year after launch, Wings’ user base was growing, but engagement was much weaker than expected. Revenue per user was also far below Nagaraj’s original estimate. Because viral sharing had limited effects, the cost of acquiring new users was much higher than expected. With an unsustainable business model and little cash left, Nagaraj and his team had to pivot again. They launched DateBuzz, a new dating site where users could vote on other profile elements before seeing a person’s photo. This addressed online dating’s biggest pain point: the influence of photos on communication. On a typical dating site, physically attractive people receive too many messages, while everyone else receives few. DateBuzz redistributed attention and improved user satisfaction. Less conventionally attractive users received more contacts, while attractive men and women still received plenty of messages. Innovative as it was, DateBuzz, like Wings, spent too much acquiring new users. Nagaraj felt that the remaining cash would not last long enough for network effects to take hold, and lacked confidence that customer acquisition costs could be lowered. He closed Triangulate and returned $120,000 to investors. So why did Triangulate fail? Clearly, the problem was not the jockey or the other participants. Nagaraj had already attracted leading venture investors and assembled an excellent team, capable of responding quickly to feedback and iterating with creativity and agility. Mediocre founders rarely attract excellent teams and smart investors. Unlike the Quincy case, this was not “the right opportunity, the wrong resources,” but the reverse: “the wrong opportunity, the right resources.” The details of Triangulate’s failure lie in its three major pivots in less than two years. On one hand, pivoting is a cornerstone of lean startups. With every iteration, Nagaraj’s team paid attention to the mantra “fail fast.” They followed the principle of launching early and often, putting a real product in real consumers’ hands as soon as possible. But lean startup involves more than that. Lean startup authority Steve Blank argues that before building a product, entrepreneurs must conduct “customer discovery”: comprehensive interviews with, and an understanding of, prospective customers. (For the full article, see “Why the Lean Start-Up Changes Everything” in the May 2013 Chinese edition of Harvard Business Review.) These interviews help a company understand customers’ strong unmet needs and which problems are worth pursuing. In his postmortem on the company’s failure, Nagaraj acknowledged skipping this crucial step. He and his team had done no advance research to establish demand for either the matching engine or the wingman concept. Nor had they run an MVP test like Quincy’s private showing of new fashions. Instead, they rushed to launch Wings and assumed the market would accept it. By failing to conduct customer discovery and MVP testing, Triangulate’s team made a mistake at the outset, turning the mantra “fail fast” into a self-fulfilling prophecy. Had they spoken with customers or tested a true MVP at the start, their initial product design might have been closer to market needs. The failure of the first product wasted a feedback cycle, and time is an early-stage startup’s most precious resource. As time grew tighter, losing a cycle meant one fewer opportunity to pivot before the cash ran out. Why, then, would founders like Nagaraj skip initial customer research? Entrepreneurs have a bias toward action and want to get started quickly. Engineers like building products. Founders with engineering backgrounds, such as Nagaraj and his team, therefore tend to rush into building the first product as fast as possible. One hopes those especially introverted engineers will follow Blank’s advice: get out of the building and understand prospective customers. Founders without technical backgrounds can also make a false start. They have heard repeatedly how important it is to build a great product and want to assemble engineers and get them working quickly. Engineers are expensive hires, and founders feel pressure to put them to work, so product development begins in a rush. #HarvardBusinessReview202105 #HarvardBusinessSchoolProfessorTomEisenmann ---- Robin: “Do not skip critical early steps in entrepreneurship, especially customer discovery. Do not start by shutting yourself away to build a product. The most important starting point is not finding money, assembling a team, developing technology, building a product, or planning a business model. It is confirming the needs of your target customers. Never build a product before those needs are confirmed; otherwise, it may all come to nothing.” Robin: “Another warning sign in entrepreneurship is that you originally want to do A, but after exploring the market you discover that A really does not work. Yet you feel you have to do B to make A possible. The most likely result is that you achieve neither A nor B. But you will not recognize this—one of entrepreneurship’s biggest traps is deceiving yourself. You may then decide you also need C, so that B and C together can make your original A possible. In short, the more detours you take, the farther you move from your original goal, and the harder it becomes to succeed.”