Fish Where the Fish Are

Guest Muser: Tom Garland, Acuitive Area Vice President

Many of you who know me know that I am a pretty crazy fly-fisherman. Recently, while wading on the pristine Trinity River in the bone chilling January cold in search of the increasingly rare Pacific run steelhead trout, I found time to reflect on my past four years at Acuitive. Much of that time has been spent in search of the illusive new market or customer on behalf of our Acuitive clients. Before I conjure up images of the Orvis catalog or Norman Maclean’s classic “A River Runs Through It,” it should be noted that despite spending countless hours on the stream incurring the wrath of my wife, who claims my gear and equipment budget may require a second mortgage, I’ve never actually caught a steelhead on a fly rod. So what keeps me coming back for more? I guess it is probably the same thing that drives entrepreneurs....the search for validation which is the subject of the next three guest musings.

The first musing entitled “Fish Where the Fish Are” is about the preparation stage which involves planning for your customer validation fishing expedition.  The second musing, “Fishing Good.....Catching Bad,” is about how to get the most out of the limited time in customer waters. The third musing entitled “All Fishermen are Liars Except for Me and You and Honestly I’m Not So Sure About You” is about the post engagement stage in the customer validation process. Finally, “Ain’t Ever Caught One of Them Before” is about validating truly disruptive technologies.  Click here for more information on Acuitive's Market Validation Practice.

What is validation? When should it be done?  Why is it so important?  I wish I could say that most entrepreneurs start companies as a result of personally witnessing the pain or inconvenience of a work flow related issue. Armed with this perspective, they were inspired to create an inherently unique solution that gave birth to their new venture.  Unfortunately that’s rarely the case.

Most entrepreneurs start out toiling away in development labs of large companies continuing to push technology’s inexorable march forward. When emancipated from the shackles of their previous employer, they naturally start ventures to commercialize familiar technologies and at best are distantly empathetic to a given customer’s pain at a given point in time.  As a result, we often see early stage companies who have developed technology in search of a problem to solve. To make matters worse, tomorrow’s solution to today’s problem may not be relevant when it finally gets to the market.

 Market validation is more than getting “sound bytes” for the VC due diligence calls.   Market validation is about listening.  It is about talking to customers and channel partners and cycling their feedback into the product development process.  It is about honestly testing market assumptions, hypotheses on customer pain thresholds and honest assessment of internal and competitive capabilities. It can exhilarate or devastate. Raw unfiltered feedback can cut right to the bone. It is never too early to start the validation process. Many early stage companies make the mistake of being way too far down the development curve before they start to engage customers.  For many young ventures, validation can be a thinly disguised attempt to generate early revenue. These companies are past the point of no return in terms of making feature and schedule trade-offs based on the feedback and the iterative process is much less valuable.

Conducting market, customer and channel validation up front is likely to save development time later. Validation can accelerate the venture funding process and possibly prevent a big hollow “thump” sound when the 1.0 product hits the market and is not quite aligned with the needs of the customer.

If you intend to stay in business past your 1.0 version, validation is a never ending process as markets, channels and competitors continually evolve as the dynamic equilibrium of the market is always in a constant state of flux.

What is the best way to get ready before you embark on your customer validation fishing trip?  Below are some tips we’ve collected from some of the locals over the years who know the good fishing holes... think of them as best practices for pre-engagement validation.

·          Make certain you know what you are fishing for....

One of the things I love the most about fly-fishing is the anticipation and preparation for a trip (often it is better than the trip itself).  For days on end, I gleefully rummage through my fly-box and horde flies because you never know if the October Caddis is going to be a size 22 emerger or a size 14 Adult dry fly.  Before I leave for the trip, I know what species I am going for. If I am going for steelhead, chances are my salt water tarpon flies are at home.

When early stage companies begin to engage customers for the first time, it is critical to understand the objective of the customer meeting.  Often the object of customer validation may be for a Series A financing or possibly to get specific feedback for the Product/Market Requirements Document (PRD/MRD).  These meetings are as different as night and day. The former is really about validating whether there is acknowledged pain and how acute it might be.  If you are lucky and there is time available, you may get some high level opinions on competitive ways to solve their pain including feedback on your solution.  Resist the temptation to launch into sell mode....listen and make sure your assumptions about the customer’s pains are grounded.  

Assuming the meeting goes well, have at least another few follow on discussions within a relatively short period of time to establish a relationship and increase the depth of the customer’s technical understanding of your offering before you even think about using the customer as a funding reference.  You would be surprised how often VCs tell us that a potential portfolio company used a customer reference for due diligence who faintly remembered the company’s solution from the single 45 minute conference call 4 months ago! (Remember the IT executive has probably talked to dozens of vendors since your discussion.)

Getting feedback on feature and functionality for a PRD/MRD requires much more technical detail than validation for funding and, if possible, should almost always be done at a customer site at a time when a customer has the motivation, the time and the willingness to help. Try to involve as many functional constituents as possible on the customer side. Generally customers are willing to help you because if you execute you just might “scratch their itch.”

These types of customer commitments are rare, and you should treat them like gold. Make sure their needs are representative of the larger market. Put them on your technical advisory board and include a stock honoraria if their company will allow them, and if not, make sure your advisory meetings are in Maui in February.

·          Tying One On

“Tying one on” in fly-fishing does not mean a next morning hangover. “Tying one on” refers to fly selection to trick the trout into thinking the imitation bug is the real thing. The quality of the customer viewable materials is critical. Even if you are not quite real yet, you need to appear real to the customer with general product availability in the near term.  The materials will make you feel tangible and will increase the chances of prospective validation candidates taking a meeting.  Iterate on the materials after each meeting until you get closer to getting consistent feedback.  This is a very important discipline and a never ending process.

 There are a lot less IT folks doing a lot more with a lot less resources then there were a few years ago.  If the customer senses you are not real and just siphoning their time to get educated, you will get labeled a “time waster.” This will obviously reduce your chances of getting invited back when you do have something to say.

·         Before you get in the Suburban, do your homework. Get a stream report.

Before I head out on a trip, I like to know what the action has been on the river I am going to fish.  Are the flows high due to the storm? Is there an evening hatch? Have the steelhead started their upstream run from the ocean?

The same goes for customer validation.  If you are working on a new VoIP solution, it might be good to know that the top tier financial services firm you are about to call just threw out the leading incumbent vendor for non-performance.  Be prepared. Find an internal advocate or get on Google before the meeting and find out as much as you can about the customer’s environment including incumbent vendors and the background of the individual with whom you will be meeting. At a minimum, you’ll score points for being prepared.

As part of our market validation practice, we put together with our client our “wish list” of the titles, names and verticals of customers and partners we want to engage.  The process of building a target database that everyone signs off on helps to build internal consensus and further define who the ultimate target customer will be. 

Recent client engagements of what I would call category “cross-over” products such as Neoscale’s storage security appliance that encrypts data in transit over the wire or the still stealth networking switch that also does per port security processing, may require multiple functional domain experts from a number of different areas to be present during the meeting.  Without the right attendees, feedback may get distorted and could be an early indicator of a complex sales cycle.  Strive to get full representation on the customer side and make sure that you involve key internal staff members such as the VP Marketing, VP Hardware and Software Engineering and the CEO in the meetings.

·          What happens on a fishing trip stays on the fishing trip.

Okay, so you blew off the fishing trip and you went to Vegas.  You get home and you want to make sure your fishing buddies are all saying the same thing to their significant others. Right?...we’ve all been there.

Centrify, an Acuitive client that has found a very clever way to unify access, policy and identity management across a multi-platform environment, has created a very neat internal positioning document that I particularly like.  Think of it as a brief handbook for internal employees on how to consistently articulate the way Centrify wants to position itself externally.  Even the lobby receptionist has the 25 word version down… which is impressive. The reason why this is important is that in early stage companies the paint is never quite dry on the positioning statement, and you really want everyone internally to consistently say the same thing whether it is to a customer or a VC.

·          What’s in it for the fish?

When I make that first cast, I know exactly what I am hoping to get out of the process, and when the fish rises out of the water for my fly I have a pretty good idea that it’s looking to get fed.

What exactly does the customer get out of educating you? Entrepreneurs need to think through what the customer will get out of the interaction. They are giving you access to their most precious assets - their time and their insights.  Most IT managers agree to customer validation meetings because they want to stay ahead of the technology curve.  Their worst nightmare is to miss the next mega IT trend because they had their head down doing real work.  Validation meetings are a time-efficient way to keep one eye on the business and one eye on what is coming next.

Mike Murphy, CEO of InQuira, a natural language enterprise search platform vendor, is the master at this. I have heard Mike’s customers such as BellSouth, Honda and Mentor Graphics say things like “Mike spent the first two meetings trying to understand my problem which most vendors gloss right over so they can pound their chest about how great their product is.”  Even if customers don’t buy InQuira’s platform, time spent with a smart guy like Murphy talking about building world class customer experiences is well spent.

During the pre-engagement stage, I like to have the client write down their “Sacred Truths” before we talk to a single customer. These “Truths” are the basis for the company’s existence and provide an outline to flush out the type of information we seek before we ever engage. The “Truths” should drive the customer viewable content to match the problem statement with the solution.  The process of writing down the belief system generates great internal dialog in preparation for the quest. Documenting the “Truths” should also serve as justification for “tar and feathering” Acuitive if we leave a meeting and didn’t dialog about them.

·          Ask a local or hire a guide.

More than I would care to admit, I have tried unsuccessfully to fish unfamiliar waters on my own. While I flail away with my thousand dollar Orvis 9 weight rod (incidentally made from the same material as the Space Shuttle), some local walks into my hole with what looks like a pool stick with a piece of yarn and a chicken leg tied to it and pulls out more fish in ten minutes than I do in ten hours. I am not sure if it’s that I am basically cheap (guides cost $300 a day[1]), or I am just stubborn and think I can figure it out.  The reality is new unfamiliar waters always fish differently, and the quicker you can get a more familiar read, the more fish you’ll get. Familiar guides accelerate the process.

There are many ways to do customer validation. From a past life, if you or your team have a strong network of contacts within a vertical market, senior IT staff will be more likely to return your calls.  Due to the fact that many of us here at Acuitive have gray temples, over the years we have built up our Acuitive customer validation database to many thousands of IT contacts who are likely to take our call. We’ve done market, customer and channel validation quite a few times for our companies and for VCs, so chances are we may know the right target in the right vertical market who will take a meeting.  This certainly doesn’t guarantee success but will definitely make the process go faster with higher quality meetings.

A note of caution. Often companies use sales professionals to get the customer discussion started.  Often these individuals are genetically programmed to attempt to close revenue even if all you have are PowerPoint slides!  Inevitably, their enthusiasm (which makes them great sales people) converts the validation call into a sales pitch resulting in the validation candidate sensing what’s coming and they clam up.  Since our contacts know Acuitive’s role is not to sell them but to extract and share data, they invariably open up more than the Acuitive client could ever imagine...all without selling!

Next month we’ll talk about the trip itself and how to get the most out of the time you have in front of customers.... “Fishing Good...Catching Bad.”

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[1] Moist ham sandwich and fish stories included...tip extra.

Tom Garland joined Acuitive in January 2001. His market, customer and channel validation practice has helped match dozens of Acuitive companies to his contacts with Fortune 1000 IT professionals in search of....  the elusive customer.  To contact Acuitive directly regarding its Market Validation Practice, email validation@acuitive.