Entrepreneurship Innovation Jun 15, 2015

Over­com­ing the Buz­z­saw of Qui­et” around Your Startup

Tips for how to opti­mize the prod­uct engine.

Yevgenia Nayberg

Based on insights from

Sean Johnson

One look at the app store tells you that, with about 1.5 mil­lion prod­ucts avail­able, build-out is not the choke point for most dig­i­tal star­tups. Each of these prod­ucts has gone through ideation, devel­op­ment, and test­ing before launch. But most of them will fail to attract and keep users.

Sean John­son, an adjunct lec­tur­er of mar­ket­ing at the Kel­logg School and a part­ner at Founder Equi­ty and the dig­i­tal start­up incu­ba­tor Dig­i­tal Intent, believes that to stand out in this crowd­ed field, entre­pre­neurs should keep their focus on an often-over­looked area of dig­i­tal prod­uct devel­op­ment: build­ing a strong cus­tomer base.

If you ask a tech start­up what their mar­ket­ing plan is,” John­son says, more often than not, it’s nonex­is­tent, or it’s some big notion of word of mouth and it’ll go viral — We’re going to get writ­ten up in Tech Crunch or Prod­uct Hunt,’ and then it’s a movie mon­tage: mon­ey, mon­ey, mon­ey, and then I’m on a boat.”

The real world, of course, rarely func­tions that way. What usu­al­ly hap­pens is that traf­fic to a startup’s site spikes in the few days after launch, and then returns to pre-launch lev­els very quick­ly. John­son refers to this post-bump peri­od as the buz­z­saw of qui­et,” when com­pa­nies real­ize that their cool idea may not instant­ly trans­late into cus­tomer traction.

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Fix Your Funnel

Suc­cess is a mat­ter of con­vert­ing cus­tomers, a process John­son visu­al­izes in the con­text of a fun­nel. At the top of this fun­nel is acqui­si­tion: peo­ple vis­it a company’s web­site or oth­er chan­nels. At the bot­tom of the fun­nel is rev­enue: cus­tomers engage in activ­i­ty that gen­er­ates rev­enue for the com­pa­ny. But there is a lot more to the fun­nel than just its two openings.

What you’ll find is a lot of com­pa­nies look at acqui­si­tion and then rev­enue,” John­son says. The mid­dle of it is sort of a black box for them.” This mid­dle — accord­ing to Dave McClure’s AAR­RR start­up met­rics mod­el — con­sists of three very impor­tant steps of the process: acti­va­tion, when peo­ple have a good first-time expe­ri­ence and sign up; reten­tion, when those sign-ups come back; and refer­ral, when they tell their friends.

Most star­tups just launch and leave it up to their users to fig­ure out what con­tent they should put in there. Then they say, Oh, we didn’t get enough peo­ple com­ing in. Darn.’”

These mid­dle steps — what John­son calls the prod­uct engine” — are where the busi­ness suc­ceeds or fails: get the engine work­ing and every dol­lar spent will go fur­ther, lead­ing to more rev­enue out the bot­tom of the fun­nel. To do this, John­son rec­om­mends star­tups launch small, focus on tac­ti­cal acqui­si­tion — where the start­up dri­ves just enough users into the top of the fun­nel to see how well the prod­uct engine is work­ing — and con­trol as many aspects of the user expe­ri­ence as pos­si­ble to facil­i­tate future con­ver­sion, reten­tion, and referral.

Launch Small and Experiment

While a start­up in a crowd­ed tech field may only have one chance to make a first impres­sion, it can con­trol when it makes that impres­sion — and save itself the risk and expense of putting a sub­op­ti­mal prod­uct in front of a large num­ber of new users. John­son rec­om­mends launch­ing to a small group of peo­ple, find­ing out what does and does not work about the prod­uct, and mak­ing the prod­uct bet­ter step by step.

Orga­niz­ing for a process of rapid iter­a­tion rather than a big launch requires align­ing the founders behind the idea, which is not always easy. You want to make huge prod­uct deci­sions when you’re deal­ing with low-fideli­ty or low-input steps like prod­uct descrip­tions, mock­ups, or click­able pro­to­types,” John­son says. The goal with small launch­es and iter­a­tion is actu­al­ly to lim­it waste.”

It’s impor­tant for the founder to remind the team to look at the data to inform deci­sions,” John­son says. Remind them to go out of the build­ing and actu­al­ly talk to peo­ple to val­i­date those deci­sions and get to the why behind those deci­sions; remind them to not get dis­cour­aged — most tests on the engine will fail. For exam­ple, it will take sev­er­al iter­a­tions to real­ly nail your refer­ral loop.”

A cul­ture of exper­i­men­ta­tion acknowl­edges that most exper­i­ments are going to fail, but the ones that do pay off will off­set that low suc­cess rate. If you’re run­ning ten exper­i­ments a week and you’re get­ting a five-per­cent lift from one of them, you’re a com­plete­ly dif­fer­ent com­pa­ny and it com­pounds,” John­son says. Over time, five per­cent plus five per­cent, that’s a mate­r­i­al difference.”

Focus on Tac­ti­cal Acquisition

Exper­i­ments need sub­jects, and those can be found and opti­mized through direct con­tact with ear­ly users.

Focus on tac­ti­cal acqui­si­tion,” John­son says. Get enough peo­ple into the top of your fun­nel so that you can study their behav­ior through the fun­nel, then talk to them. Don’t just look at their ana­lyt­ics, but have con­ver­sa­tions with them and then make iter­a­tions on your prod­uct based on what you learned.”

It is also key, ear­ly in the process, to ensure that even new users can inter­nal­ize why the core expe­ri­ence of the prod­uct is use­ful for them — what John­son calls the light­bulb moment.”

Onboard­ing the cus­tomer is crit­i­cal to new users reach­ing that light­bulb moment. If new users see a blank screen with no tips, demos, advice, or sam­ple con­tent, they will be less like­ly to acti­vate. Most star­tups just launch and leave it up to their users to fig­ure out what con­tent they should put in there,” John­son says. Then they say, Oh, we didn’t get enough peo­ple com­ing in. Darn.”

John­son uses the exam­ple of how com­pa­nies design their CRM sys­tems. Most UX design­ers will envi­sion what the prod­uct looks like when it is ful­ly real­ized by users, but they rarely give enough though to how the sys­tem looks the first time a user encoun­ters it, with no con­tacts or data.

Con­trol the User Experience

One way to con­vince users of a product’s func­tion­al­i­ty ear­ly on — whether in a mar­ket­place busi­ness or a CRM — is to seed the net­work as a way to help peo­ple under­stand how to use the tool or app. For high­ly net­worked envi­ron­ments like Red­dit or Ello, where util­i­ty is deter­mined by how many — and how active­ly — peo­ple use the prod­uct, there need to be active users. If peo­ple wan­der into a ghost town, there is lit­tle rea­son to spend time wait­ing for oth­ers to join the par­ty. Proac­tive com­pa­nies, includ­ing Red­dit, seed their net­works to project the image of vital­i­ty until users take the reins.

They real­ized the impor­tant arti­fact of Red­dit wasn’t the user, it was the link,” John­son says. All users cared about was com­ing to Red­dit and find­ing cool stuff there, and com­ing back the next day for new cool stuff.”

Con­trol­ling the user expe­ri­ence extends to design as well. Many com­pa­nies make the com­mon mis­take of equat­ing exper­i­men­ta­tion with adding fea­tures to the prod­uct. The real focus, John­son says, should be on get­ting the core expe­ri­ence right.

If you are not get­ting the response you want from users, the answer isn’t to put a bunch of oth­er junk on it,” John­son says. If the core expe­ri­ence is not good, peo­ple are not going to use it because it does this oth­er side thing.”

Advan­tages of the Fixed Funnel

The tech space is attrac­tive for star­tups because the bar­ri­ers to entry are low, entre­pre­neurs can move quick­ly and iter­ate on their prod­uct idea, and the kinds of data that pro­vide cus­tomer feed­back are eas­i­ly avail­able. But if con­di­tions such as these are avail­able to every­one, are they real­ly that help­ful? In some ways, yes — speed and accu­ra­cy of deci­sion mak­ing can only help. But it has made the tech space more competitive.

In a crowd­ed envi­ron­ment, com­pa­nies are not just com­pet­ing against prod­ucts with sim­i­lar func­tion­al­i­ty, but against every oth­er prod­uct in the mar­ket. Cus­tomers are con­stant­ly ask­ing why they should stop what they are doing and adopt a new prod­uct. Strong acti­va­tion, reten­tion, and refer­ral process­es are an advan­tage that is unique to the com­pa­ny and the prod­uct around which it is built.

Opti­miz­ing cus­tomer con­ver­sion gives you options,” John­son says, because the fun­nel flows all the way down. It’s also more pro­tectable. It’s a lot eas­i­er to ape my adver­tis­ing strat­e­gy than it is to ape my cus­tomer-refer­ral sys­tem. That is a much hard­er thing for a com­peti­tor to come in and copy.”

Featured Faculty

Sean Johnson

Adjunct Lecturer of Marketing

About the Writer

Fred Schmalz is the business editor of Kellogg Insight.

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