The Launch Path: Main article, Step 2

Build something people want.

If you don’t, then nothing else matters, really.

The only imperative that matters, really.

Back in 1999, I had an awesome idea for a new startup. I was so excited I could barely contain myself. It was the height of the dot-com boom in Silicon Valley, and all my friends were getting filthy rich. 

I spent late nights producing a pitch deck for my startup. Surely, this set of slides would convince investors that my idea was brilliant and worthy. After many long hours, my pitch deck was finally perfect, and I asked for a meeting with a friend who had recently joined a venture capital firm. I walked into his conference room early on a chilly November morning, feeling confident and prepared.

By the end of the meeting, we were high-fiving about how awesome my idea was. His firm led a $5 million initial round of financing, and I was off to the races.

With funding secured, I quickly recruited an all-star team of twenty software engineers to build my awesome idea. We labored for two years, fully convinced that our idea would be a big hit with customers. All the ingredients were in place –  we had a great startup idea, we were obviously an incredibly smart team, we were backed by incredibly smart venture capital investors — what could go wrong?

Well, after spending two years and five million dollars building a product we thought was awesome, we released it, only to find out that no customer wanted it. Customers didn’t care about all the work we put into building the product because it didn’t solve a single one of their problems. My awesome idea was a complete failure.

This has been a recurring issue since the dawn of entrepreneurship: how does one reliably create new products that succeed?

We’ve all seen examples of companies large and small that put enormous effort into developing a new product they are sure will be a success, only to find out that customers don’t want it.

The research firm CB Insights conducts an annual post-mortem survey of failed startups, and year after year they find that “no market need” remains a leading cause of startup death. How the hell do you build and fund an entire company without first determining whether there’s a market need? It seems ridiculous, yet it happens over and over again.  I’ve done it myself.

The worst new product failure in history (this one wasn’t me!). 

While my own experience was painful, many others have had it much worse. The greatest new product failure in American history was probably the Ford Edsel. It’s still legendary for how spectacularly it failed, and the name has become synonymous with disastrous product development.

The Ford Motor Company had an initial public offering (IPO) of stock in 1956. Led by Goldman Sachs, the offering raised $650 million (more than $7 billion in 2023 dollars). At the time, it was the most successful IPO in American history, and Ford decided to spend a chunk of that shiny new cash developing the most sophisticated automobile line on Earth. They hired the world’s top automotive engineers, who then spent three years and $250 million developing the new car they called the Edsel, named for Henry Ford’s grandson. The engineers had developed exciting new features like push-button transmission shifting, self-adjusting brakes, triple-thermostat cooling, and a state-of-the-art 410-cubic-inch engine.

Ford executives were so sure of success that they launched the Edsel with not just one but eighteen new models spread across four lines and a twelve-million-dollar advertising campaign developed by the famous Madison Avenue ad agency, Foote, Cone & Belding. The Edsel’s tagline, glamorizing it as “the newest expression in fine engineering from the Ford Motor Company,” drove home the idea that it was indeed the most advanced automobile ever produced.

But despite the huge engineering and advertising investment, the Edsel failed to sell. Out of the projected one million units, only sixty thousand sold the first year, followed by fifty-six thousand the second year, and then Ford shut down the entire production in the third year. The Edsel line lost $350 million (over three billion in today’s dollars) and went down in history as the most spectacular new product failure ever.

Successful product innovation occurs at the intersection of what is technically feasible, has positive economics, and aligns with what customers want. The Edsel only had one of those: the engineering was feasible. But it didn’t align with what customers wanted, and the manufacturing economics were upside down. 

Entire books have been written about the Edsel’s failure, and as a case study, it has been taught in MBA classrooms for many years. Yet we continue to see companies spend a lot of money developing products they are sure will be a success, only to find out customers don’t want them. 

Product-Market Fit

In an attempt to put a framework around developing products that succeed, a few years ago venture capitalist Andy Rachleff developed the concept of product-market fit, suggesting that the entire goal of a startup is to achieve a fit between what your product does and what the market wants. I didn’t achieve product-market fit with my startup in 1999, and Ford didn’t achieve it with the Edsel in 1958—nor did several thousand companies since then. The notion of product-market fit is a critical one that every startup founder needs to understand.

Marc Andreessen expanded on his own experiences with product-market fit in an article he wrote for the Stanford School of Engineering:

“Product/market fit means being in a good market with a product that can satisfy that market”, emphasizing that the concept only works if you’ve found a good market for your product. If you haven’t found a good market, even a great product isn’t likely to be successful.

You can always feel when product-market fit isn’t happening

The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of ‘blah,’ the sales cycle takes too long, and lots of deals never close.”

And you can always feel when product-market fit is happening. 

The customers are buying the product just as fast as you can make it—or usage is growing just as fast as you can add more servers. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it. You could eat free for a year at Buck’s.”

He then succinctly summarizes the whole concept by stating that, with startups, “the only thing that matters is getting to product-market fit.”

If this is indeed “the only thing that matters” for startups, then there is only one question: how do we achieve product-market fit most effectively? There are three concepts I wish I had understood when I founded that software business back in 1999: Customer Development, Lean Startups/MVP, and Design Thinking. Let’s take a look at all three. 

Customer Development

Steve Blank coined the term Customer Development. Steve is a crusty startup veteran often referred to as the godfather of Silicon Valley startup methodology. He and I had lunch together at a Thai restaurant a few years ago, and he told me a story about an experience he once had when he was a startup CEO. 

“We had a new product under development”, Steve said. “It wasn’t quite ready, but my top salesperson and I decided to go out and meet with some customers so we could tell them about our exciting new product that would be available next quarter.”

They built a slide deck about the product and all its amazing features, then hit the road to meet customers.  “After the first customer meeting, we realized the product was all wrong, so while my sales guy drove us to the next customer meeting, I sat in the passenger seat and edited the slide deck based on the feedback we had received.” The day continued, repearting the same process. After each meeting they would update the slide deck about the product based on the input they received. Steve finished his story to me with “by the end of the day, the product in our slide deck was perfect, but it wasn’t the product the engineering team had been building”.

From that experience (and others) he realized that we were all doing it backwards. We needed to be doing what he called Customer Development  before we did product development. 

Steve founded eight companies in his career. Four underwent successful IPOs, while four failed so spectacularly they left (in his words) “giant craters in the ground.” He then semi-retired and wrote a book called The Four Steps to the Epiphany: Successful Strategies for Products that Win..3

In his book, Steve writes about how startups tend to conduct product development, then after the product is developed they go out and try to find customers (I did that and ended up losing a lot of money). A process with a much higher likelihood of success, Steve writes, would be to first spend a whole lot of time talking to customers, and then build a product based on what you’ve learned from their real-life experiences. 

He breaks Customer Development down into four steps:

Customer discovery first captures the founders’ vision and turns it into a series of business-model hypotheses. Then it develops a plan to test customer reactions to those hypotheses and turn them into facts. 

Customer validation tests whether the resulting business model is repeatable and scalable. If not, founders should return to customer discovery.

Customer creation is the start of execution. It builds end-user demand and drives it into the sales channel to scale the business.

Company building transitions the organization from a startup to a company focused on executing a validated model.

For the purposes of the Launch Path, we will focus on the first two steps, as they are the most applicable to early-stage startup ventures.

In a nutshell, early-stage Customer Development is about validating your assumptions by talking to actual customers, and making sure your product development roadmap is informed by these validated assumptions. Like everything else in our Launch Path methodology, it’s an ongoing process – you don’t just do one set of Customer Development interviews and declare that you’re done. Instead you want to have the mindset of always making sure that what you’re building has been tested and validated by interactions with real customers. 

As startup founders, we have a set of untested hypotheses about who the customer is, what features they want, what channels to use, etc. We don’t want to build a product based on untested hypotheses, we want to build a product based on actual validated facts. That’s the heart of the Customer Development concept. 

Lean Startups/MVP

The term “Lean Startup” was popularized by Eric Ries in his 2009 book of the same name, based on the previous work of Steve Blank. It’s a methodology for developing business and products by shortening development cycles via experimentation and validated learning.

Contrary to popular belief, the “lean” doesn’t mean cheap. You could use the Lean Startup methodology with a $100 million budget. The name Lean Startup comes from the auto industry and the fact that Toyota revolutionized that sector with their Lean Manufacturing methodology, which preached shorter production cycles and a more iterative approach to building products.

Ries preaches that startups can successfully use the principles of Lean Manufacturing combined with the scientific method. Your assumptions are just hypotheses, so find ways to test them empirically. 

Central to the lean startup methodology is the concept of a Minimum Viable Product (MVP). The idea is simple: a startup should test their product idea by first building a bare-bones prototype with a minimum set of features, then put that out into the market to learn from. Based on those early learnings from your MVP, you can develop a product roadmap informed by real users.

The key many people miss is that the purpose of building an MVP is learning, not showing. Mediocre entrepreneurs build an MVP to show something, while great entrepreneurs build an MVP to learn something. 

Think of how Facebook launched with just a bare minimum set of features, but today it has a zillion features, all informed by watching the interactions of real users. That is the lean startup concept in action.

Design Thinking

David Kelley, who designed many of the early Apple products and then went on to found the design consultancy IDEO (and then the Hasso Plattner Institute of Design, or d.school, at Stanford) popularized a product-engineering framework known as design thinking. Its five steps are to: 

Empathize (develop a deep understanding the customer/user) 

Define (develop a point of view around a problem you can solve)

Ideate (brainstorm about how you can solve that problem) 

Prototype (build an early MVP)

Test (get input from actual customers) 

By iterating through this process, you will end up with an innovative product that aligns with the needs of your customers. Over the years, several related frameworks have been developed, including User Centered Design, Value Centered Design, Product Thinking, and others. They all have proponents and adherents, and I’m sure you can find someone in a Palo Alto cafe to argue passionately about which one is best. To me they are all variations of the same theme: don’t just build a product you think is awesome; use a process that helps you build a product customers think is awesome. 

Who da customer?

All of the concepts discussed in this chapter are about making sure you are building something that customers will buy. And so you need to be careful to distinguish between random feedback and actual customer input. If you put a digital MVP out in the marketplace and then just start creating new features for every troll who gives you input, you’ll be spinning your wheels. On the other hand, if ten people say they would buy your product now if you had one particular feature, then that might be a feature worth working on (see the Zapier case study later in this book). My colleague Edwin Oh teaches an entire course on product-market fit, and as he puts it “The only real validation is a monetary commitment in either the form of cash, a credit card number, a binding letter of intent, or dedication of resources to a beta test.  Everything else is a pat on the back or unqualified opinion.” So beware making changes to your product on the basis of an “unqualified opinion”. Unqualified opinions don’t pay the bills. 

Remember also that there are many businesses where the user is different from the customer. Social media companies, for example, have users (you and me) and then they have customers (advertisers). Ultimately they need product-market fit with both users and advertisers for their model to work. 

Two-sided marketplaces (discussed further in Chapter 4) need two sets of product-market fit. Airbnb needed product-market fit with people looking for a room to rent and with people looking to get some income from the extra room in their house. With medical device startups your user is the patient, but the customer actually making the purchase decision is often a physician (working within a purchase environment shaped by insurance companies). So as you are working on getting to product-market fit, make sure you are fitting the right thing(s)!

Summary: It’s just common sense, really. 

All of these terms, “Product-Market Fit,” “MVP,” “Lean Startup,” and “Design Thinking”,  get tossed around as if they were magic elixirs. Honestly, it’s really just the common-sense way that successful businesses have always been built.

Let’s say we wanted to open a neighborhood bakery. Our goal is to bake bread that our neighborhood wants to eat (Product-Market Fit). We might begin by asking our neighbors about their taste in bread so we can understand what they care about (Design Thinking). We’ll make some small batches for them to taste and give us feedback on (prototyping). Now maybe we should set up a booth at some farmers’ markets to learn a little more about the economics of selling bread (an MVP). If we take these steps before we lease an expensive building and build out an expensive bakery kitchen, we will have a greater chance of success. It just makes sense.

Successful startups are built upon a series of small experiments. As entrepreneurs, we go into the startup process with a lot of assumptions about what we think customers will buy. But building a new product or service entirely based on what you think the world needs has a very low likelihood of success (I’ve tried it and lost a lot of money). 

So always be thinking about small experiments you can do to validate your assumptions with real customers. 

Ultimately, what matters is achieving product-market fit, a fit between what your product does and what the market wants. Therefore, your focus should be on whatever will help you get there efficiently and effectively. 

1.    Spend a lot of time talking to prospective customers up front (do         

      customer development before you do product development).

2. Embrace the fact that most of your assumptions will be wrong and success depends on testing your assumptions before the market tells you just how wrong you are.

3. Always be thinking, “What’s the smallest experiment I could do right now that would provide the greatest possible learning?”

4. Embrace the concept of your minimum viable product (MVP) as a great way to learn from the marketplace. Don’t think of an MVP as a one-time deal; rather, using multiple MVPs is part of the process by which you are getting validated knowledge of the market as you continue to iterate upon and improve your march toward product-market fit and beyond.

Remember that everything in this chapter is best thought of as an ongoing process. I once had a student ask me “So when can I stop iterating on my product?” and the answer, of course, is never! Successful companies are continually iterating on product offerings based on input from real customers. Product-market fit is an ever-shifting target, as customers change, markets change, and competitive landscapes change. The band Journey sang “Don’t stop believing”, and I’ll add onto that “Also, don’t stop iterating”.

Here’s the bottom line: for your startup, and for companies at every phase, there is one overarching imperative: make something people want.